Allied Farmers shelves crucial capital raising after finance unit deed breach

Monday 9th August 2010

Allied Farmers put on hold plans to raise $19.3 million after its its finance company subsidiary breached its trust deed, forcing it to pull its prospectus.

The parent company disputes the breach and the finance unit’s accounts are currently being audited. Chairman John Loughlin said he believes Guardian Trust can be placated and Allied Nationwide’s prospectus reinstated. The company faces a crunch when the government’s guarantee expires on October 11 as its single B credit rating means it doesn’t qualify for the extended guarantee.

“The issued around Allied Nationwide was its future liquidity position and how it would be funded after the government’s guarantee expires,” Loughlin said.

He said Allied Farmers may have to provide some additional capital for the finance unit to soothe the trustee’s concerns. One option may be to transfer some of the loan assets acquired from Hanover and United finance to Allied Nationwide.

The reinvestment rate at Allied Nationwide dwindled to 29.3% in May from 48% in the six months through April, according to an investment statement in June. The company has more financial elements to juggle, with Bank of New Zealand indicating it doesn’t want to continue to provide a $120 million funding standby facility for a Securitization Programme of Speirs Securities, an earlier acquisition by Allied.

The finance company was forced to pull its prospectus on Friday after Guardian Trust deemed it had breached one of its trust deed financial ratios. The parent company disputes the breach.

Allied has 14 days to remedy its position.

Allied Farmers announced this week that is plans to raise $19.3 million in a placement and rights issue at a 54% discount to repay debt and shore up its finances while continuing the slow process of selling property assets.

The capital raising, which has been underwritten by McDouall Stuart Group for $9 million, includes an institutional placement at 2.5 cents a share to raise $2.25 million and a rights issue to current shareholders on the basis of one new share at 2.5 cents apiece for every three shares held.

Shares of Allied tumbled 22% to 3.5 cents on the NZX today.

The group last month gained a six-month extension on its loan facility with Westpac Banking Corp., giving it more time to repay debt and restructure its business.

It had $21 million outstanding on the facility as at June 30 and had an overdraft facility of $2.5 million that was set to expire on July 1.

Businesswire.co.nz

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