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Rural Portfolio asks NZX to delist preference shares, can't top up escrow account

Monday 3rd May 2010

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Rural Portfolio Capital, the investment vehicle of Baird McConnon and Craig Norgate, asked the NZX to delist its preference shares because it has run out of cash and can’t meet the terms of its Trust Deed. 

The securities were subsequently suspended indefinitely by the NZX. The $60 million of preference shares are to be cancelled even though the company can’t afford the redemption.

The move won’t undermine investors’ rights to the money they are owed or the assets they’re secured by -  46.8 million shares of PGG Wrightson, 10 million shares in NZ Farming Systems and $742,314 sitting in the escrow account, a group of assets with a market value of $29.6 million, it said.

RPI has made a proposal to Trustees Executors Ltd., the trustee for investors, that it believes would result in the “quick and cost effective” solution, it said on Friday. It gave no details in its statement, saying preference shareholders would be advised “of the actions taken by the Trustee at the appropriate time.”

The investment company has been unable to top up its dividend escrow account as required after it was emptied to make the last payment to investors. It said the shortfall is $1.45 million. The account is required to always hold enough for the next payment, in this case on Oct. 15, of $2.19 million.

“The lack of any prospect of RPC or RPI (the guarantor of the RPS) fully funding the DEA (dividend escrow account) by the end of the remedy period means that they cannot meet their obligations under the Trust Deed as they fall due,” the company said.

Under the Trust Deed, Rural Portfolio had 30 days from the April 16 breach.Last week, Rural Portfolio Investments sold about half of its stake in Wrightson, 6.4%, or 48.5 million shares, for 56 cents apiece, raising $27 million, using the funds to repay debt.

Wrightson shares dropped 5.4% to 53 cents on Friday and Farming Systems was unchanged at 41 cents.

Rural Portfolio was deprived of the cash flow it had depended on to meet dividend payments when Wrightson suspended its own dividends expected in October 2009 and this month.

At the same time, its holding in Wrightson was diluted by Wrightson’s placement and rights issue, which Rural Portfolio didn’t participate in.The value of Wrightson shares has tumbled 47% in the past 12 months, while Farming Systems dropped 32%.

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