Newsletter April 2010

April 1, 2010

Daniel Bensaude

We were all shocked to hear of the accidental death of Daniel Bensaude recently. Daniel worked at Bramwell Brown for a number of years, and was still a regular visitor to the office. He was great company on the golf course, and he will be sadly missed by many. Sue and I will miss his regular visits to bank his Friday/Sunday golf takings. The respect the wider community had for Daniel was evident at a packed memorial service last week. Paddy – your tribute to Daniel was exceptional. We extend our sincere sympathies to Liz, Oliver, Louisa and their families.

Strategic Finance

Strategic Finance has been placed in receivership after failing to convince its trustee, Perpetual Trust, the moratorium was in investors’ best interests. The value of Strategic’s loans fell below 75% of the money owed to investors which forced the receiver to review the conditions of the moratorium. They clearly feel Strategic has had enough time to pursue options to recover money it is owed, and now believe receivership is in investors’ best interests. We will never know, of course, which the best course of events is; however few of the current finance company moratoriums appear to be offering much satisfaction to investors. It is disturbing to see the chief executive, Kerry Finnigan, has been paid $550,000 per annum throughout the moratorium. Obviously you can’t expect him to do the job for nothing but is $10,000 per week acceptable for presiding over a failed company?

Since the receivership yet another offer has been made to Strategic investors to buy their debentures. Stock and Share Trading Pty are offering twenty cents in the dollar, double the figure offered in January by Marchmont Securities. I would reiterate my earlier advice suggesting there is more than twenty cents in the dollar left in the Strategic debentures, and these people are simply looking for an opportunity to make money at the expense of investors who are already under pressure. The receivers are expected to report on the state of Strategic’s loan book shortly, and should be able to provide guidance on what level of recovery may be achieved.

South Canterbury Finance

Is South Canterbury Finance the next finance company to hit the wall? It seems an interminable wait to see how the company is going to restructure its balance sheet. There is no question Alan Hubbard puts investors’ interests ahead of his own, however ethics alone may not be enough to save the company. Hubbard has injected over $150 million of equity into the company through the sale of Helicopters (NZ) Limited, and part of Scales Corporation, however it’s cash the company needs. As with other Government Guaranteed finance companies, South Canterbury Finance has a disproportionate amount of debentures falling due in October, and without achieving the extension to the guarantee they will struggle to cope with such a huge outflow of cash. I believe South Canterbury Finance will be granted the extension to the Government Guarantee. I think the Government is well aware of the importance of South Canterbury Finance to the economy, and to overall confidence in the economy. Up until last year it was regarded as our premier finance company, with an owner whose standard of ethics are unmatched in the industry. I hope for Alan Hubbard’s sake, and for the sake of the thousands of investors who have put money with the company (myself included), that they can trade their way through the current difficulties.

The Guarantee offers many investors assurance, regardless of what happens to South Canterbury Finance. Many investors have their funds maturing in early October, before the Guarantee expires. But what about the bonds maturing in June 2011 and December 2012? The irony is that if South Canterbury were to fail prior to October, these bonds would actually be covered by the Guarantee. If South Canterbury trades past October, and is not awarded the extension to the Guarantee, then the fate of those bonds is solely reliant on the company’s performance from that point forward. The 2012 bonds have been trading recently at yields of 28.50% (around 66 cents in the dollar).

Visit from Ronald Hay

Our Australian share dealing is conducted through a Melbourne broker, EL & C Baillieu. Over the years they have provided very good advice for our clients. Ron Hay, one of Baillieu’s directors, will be in the country in May and has offered to give a presentation on the Australian sharemarket to our clients. We will be having an afternoon function at the Masterton Club on Wednesday May 19th. All clients are invited; however we must have numbers for catering, so please ring the office if you would like to attend. Further details will follow in next month’s newsletter.

Perpetual Reset Securities

In May 2009 I wrote about the perpetual securities on the market, trying to explain their various characteristics, and why some were trading at such heavy discounts. With KiwiBank bringing a perpetual preference share to the market I thought it was worth revisiting the subject. Most of the perpetuals have similar characteristics in that they don’t have a set maturity date, and they have their interest/dividend rates reset at various intervals. The rate resets are based on a benchmark rate plus a margin. Here are some examples.

Security          Benchmark                Margin           Current Rate             Current Price/100

Infratil              1 Year Swap                1.50%                 4.97%                               $66.00

Origin              1 Year Swap               1.50%                 4.95%                               $72.30

Rabobank        90 Day Bill                  0.76%                 4.12%                               $82.30

Quayside         3 Year Swap               1.70%                10.00%                             $101.40

ANZ                  5 Year Swap               2.00%                 9.66%                               $106.90

BNZ                  5 Year Swap               2.20%                 9.89%                               $104.00

Rabobank       5 Year Swap               3.75%                 8.78%                               $106.25

BNZ                  5 Year Swap               4.09%                 9.10%                               $105.50 

Anyone who invested in the early perpetuals can rightly feel a bit grumpy – the rates of return are considerably lower than when they were issued, and they are selling at a discount in the secondary market. These securities were issued well before the global financial crisis, and the margins offered at the reset dates didn’t raise any questions due to the fact the benchmark rates were at high levels at the time. The later perpetuals had higher reset margins due to the extra perceived risk following the global financial crisis. Investors in the later securities should be pleased with their choices – not only have they received high interest rates, but they would receive a premium if they were to sell them in the secondary market now. As interest rates rise the earlier perpetuals will pay higher rates of return, and should also increase in value.


I will be taking a weeks holiday after Easter and will be away from April 2nd to the 11th. Sue will be in the office each day from 10am and will be able to place orders for you. If you need to speak to me I am happy to be contacted by cellphone on 0274523980. I will also be away attending my daughter’s graduation in Christchurch from April 20th to April 22nd.


The Warehouse Group is seeking to raise up to $100 million in unsecured, unsubordinated, fixed-rate bonds. The main features of the offer:

  • Maturity date – 15th June 2015
  • Minimum interest rate of 7.30%
  •  Interest will be paid semi-annually
  • Minimum investment of $5,000 – thereafter in multiples of $1,000
  • Closing date – April 23rd


A related company of Kiwibank, to be called Kiwi Capital Securities Limited, is making an offer of up to NZ$100 million (with the option to accept oversubscriptions of up to $50 million) of perpetual, callable, non-cumulative preference shares. The proceeds from the issue of the shares are to be ultimately used to provide tier 1 capital to Kiwibank Limited.

The shares are not shares in Kiwibank, but are shares in Kiwi Capital Securities. Kiwi Capital Securities’ ultimate parent company is New Zealand Post Limited. The shares will have no maturity date. However, the shares may be called on the fifth and tenth anniversary of their issue date, and quarterly thereafter (and in certain other circumstances).

The dividend rate applying to the shares will be fixed for the initial five years and then reset for subsequent 5 yearly periods at the margin plus the swap rate applying at the time. Dividends are scheduled to be paid on a quarterly basis. Dividends are non -cumulative. An announcement of the margin and minimum dividend rate for the shares is expected to be made on or around the opening of the offer which is anticipated to be in early April 2010.

  • Indicative rate for the first five years of 8.00% to 8.50%
  • BBB Standard & Poors credit rating
  • Closing Date – April 30th




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