Confidence could be hit by collapse

Ratings agency Standard & Poor's says the receivership of finance company Bridgecorp has the potential to affect market confidence.

Thursday, July 5th 2007, 6:37AM

Specialist property financier Bridgecorp was placed in receivership on Monday after defaulting on repayments of some term investments due to investors.

In total about 18,000 investors and $500 million in investments are caught up in the receivership.

S&P today said the Bridgecorp default unambiguously highlighted the need for the strengthened regulations in the New Zealand Non-Bank Deposit-Taking (NBDT) sector announced last month by the Government.

For now NBDTs can choose whether to get a credit rating, but a new law due to be introduced to Parliament before the end of the year will make it mandatory.

S&P said the Bridgecorp default could have potential effects on market confidence and spill-over effects on this country's "extraordinarily large" number of retail debenture-issuing finance companies.

It would be monitoring the rates at which finance company debentures were renewed, which was likely to be one of the best barometers of retail investor confidence.

The greatest sensitivity affecting the NBDT industry in the short term was the potential effect of the Bridgecorp default on the funding bases of retail debenture-issuing finance companies, S&P said.

S&P corporate and government ratings director Gavin Gunning said the failure of Bridgecorp during favourable macroeconomic times highlighted the need for the NBDT sector to get its house in order before the next economic and property cycle.

Coupled with the failures of three other finance companies during the past year or so, it was a red flag signalling that reforms were needed within the industry as a matter of priority if more investors were not to lose out when the economic cycle turned.

A major challenge for investors was differentiating between stronger and weaker NBDTs, an area where S&P believed it could provide credible, independent credit ratings. "Based on public information we believe that there are some sound companies in the New Zealand NBDT sector in which investors can have confidence," Gunning said.

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