New Zealand launched a nearly NZ$1.8 billion (US$1.26 billion) bailout yesterday after one of the country’s largest non-bank lenders collapsed with massive debts.
The government said it was covering debts owed to 35,000 depositors at South Canterbury Finance after the company failed to find new capital in time for yesterday’s deadline set by its creditors and went into receivership. New Zealand Prime Minister John Key said swift government action was needed to limit fallout from the collapse on the wider economy.
“That should, in our opinion, make sure that there is the minimum deterioration to other assets in the same sector and cause the least disruption in the marketplace,” Key told reporters.
The government funds will not go to South Canterbury, which began as a rural lender in 1926, but in recent years diversified into more exotic investments.
Instead, it will be paid to the company’s receivers, who will distribute it to depositors and stockholders who would have otherwise lost their assets when South Canterbury went under.
“When an up-to-date register of debt security holders is available, the Crown and the Trustee [the receiver] will arrange prompt payment to everyone on the register,” acting Treasury Secretary Gabriel Makhlouf said in a statement.
He said South Canterbury depositors were covered by a government guarantee on retail deposits introduced in late 2008 during the global financial crisis.
Under the bailout, the government has paid NZ$1.6 billion earmarked for depositors to the receiver and is extending an additional loan of NZ$175 million to cover other debts.
Officials said this would make the government the first-ranked creditor in the receivership and ensure an orderly process to recover funds from the collapsed company, avoiding a fire sale of its assets. They said the government eventually expected to recover most of the funds allocated to the bailout.
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