By Jenny Ruth
Wednesday 17th March 2010
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There is "a distinct possibility" NZF Group will opt to convert its $20 million of capital notes maturing March 2011 into equity, says McDouall Stuart.
"While we acknowledge NZF as a conservative and well-run finance company, its capital structure is clearly in need of resolution," it says. NZF can chose whether to redeem the notes in cash or to convert them to shares at a 5% discount to NZF's share price over the 20 business days before conversion.
Ratings agency Standard & Poor's has assigned NZF Money a "B" long-term rating, largely because of the parent company's weak capitalisation. That's three notches below the level required to qualify from October this year for extended coverage under the government's Retail Deposit Guarantee Scheme (RDGS).
NZF has engaged specialist financial services consultant Ecko Capital to advise it on recapitalisation.
McDouall Stuart says NZF's capital notes "present essentially the same investment and conversion characteristics" as Allied Farmers' capital notes maturing November 2011.
However, while the Allied Farmers' notes, which have a 9.6% coupon, last traded at 26%, the NZF notes, which have a 9.75% coupon, last traded "at an incredible 85%."
Liquidity of trading in both notes is very light "and extreme pricing outcomes are always a possibility with such light trading."
BROKER CALL: hold awaiting the outcome of the recapitalisation process.
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