Wellington, Aug 13 NZPA - South Canterbury Finance has had its credit rating cut to a non-investment, or junk, grade by Standard & Poor's.

S&P said a "rating trigger" on a $US100 ($NZ150.69) million private placement facility South Canterbury has may be invoked by the downgrade to a BB plus rating.

Private placement investors have an option to review their funding "which if it resulted in a requirement to repay the facility, has the potential to exacerbate South Canterbury Finance's already modest liquidity position", S&P said.

It is understood that the review clause is not expected to be invoked.

The rating outlook is still negative.

South Canterbury Finance chief executive Lachie McLeod said the rating would not impinge on plans to introduce new capital, or affect the ability of the group to make scheduled interest payments.

All debenture holders with deposits of up to $1 million are covered by the Crown deposit guarantee.

S&P said the downgrade reflected asset quality pressures in the New Zealand property development sector.

Last month S&P placed the company's BBB minus rating on negative watch, meaning there was a one-in-two chance of a downgrade in the next three months.

South Canterbury Finance said then that it expected to retain an investment grade rating with shareholder and chairman Allan Hubbard to complete an underwrite guarantee.

Mr McLeod said today that the fact that New Zealand had been in recession longer than most OECD countries appeared to have had some bearing on S&P's thinking.

South Canterbury Finance would continue to work with S&P to re-instate an investment grade credit rating over the next six to 12 months.

An update on the group's already announced intention to introduce further capital was likely in the next four weeks.

South Canterbury Finance said last month that Mr Hubbard was providing $40 million of new capital and would provide further support if required.

"South Canterbury Finance is a sound, profitable business and I am committed to supporting South Canterbury Finance and its 45,000 investors who have loyally supported the group for 83 years," Mr Hubbard said.

Mr Hubbard is a well-known businessman and philanthropist based in Timaru.

The company said it was also investigating other external sources of new equity, to continue to strengthen its position over the next six months.