1 Sep 2010

Dollar falls on news of finance company's collapse

1:31 pm on 1 September 2010

Financial markets have hardly reacted to assurances South Canterbury Finance's receivership will cause little disruption to the economy.

The company is one of the largest of its kind in New Zealand but investors will get their money back under the Government's Retail Deposit Guarantee Scheme. The final cost to taxpayers is expected to be about $600 million.

The New Zealand dollar fell half a cent to about US70 cents on Tuesday after the announcement that the company was in receivership. At 5.20pm, it was trading at US70.25c.

The currency fell on fears the receivership could trigger foreclosures in the South Island land market.

However, Finance Minister Bill English says there will be no fire sale of the company's assets. As first-ranking creditor, the Government would drive the receivership, which could take up to four years.

Westpac currency strategist Imrie Speizer says the New Zealand dollar has failed to recoup earlier losses on Tuesday.

Mr Speizer says markets are still digesting the impact of the receivership on the economy.

He says the Government may have to increase its borrowing to cover the possibility of further collapses - a prospect that also spooked markets.

NZ credit rating unchanged

International credit rating agency Standard and Poor's says the receivership will not immediately affect New Zealand's AA+ rating.

There were concerns the Government would have to increase its borrowings to pay the $1.6 billion owed to South Canterbury investors, but the Government says it will use the fees it charges institutions to take part in the scheme and the rest will be recouped from the sale of South Canterbury Finance's assets over time.

Standard and Poor's says New Zealand has maintained its long-term AA+ rating because public finances remain sound and the economy is resilient.

Finance Minister Bill English says the payments made under the deposit guarantee scheme do not change the outlook for the Government's books.

Treasury Bill tender not fully taken up

The Government says South Canterbury Finance's receivership could have affected its borrowing programme.

The Government's weekly Treasury Bill tender was not fully taken up on Tuesday, for only the third time this year.

The Government tried to borrow $350 million but could only get two-thirds of that from investors. It also had to offer a slightly higher interest rate to sell Treasury Bills at the auction.

A failure to meet its weekly borrowing requirements in full has only happened half a dozen times in the past two years.

The department in charge of the Government's borrowing programme is investigating the shortfall and talking to investors to find out more.

Andrew Turner, from the Debt Management Office, says uncertainty arising from South Canterbury's receivership may have been a factor.