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Allied Farmers stock sinks ahead of allocation to Hanover investors

Thursday 17th December 2009

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Allied Farmers Ltd. stock sank to a record low ahead of the company’s allocation of about 1.9 billion new shares to Hanover Finance investors who will end up controlling the enlarged company.

Shares of Allied fell 13% to 15 cents, valuing the company at $7.2 million. It will issue new shares at 20.69 cents apiece. The swap is based on a calculation that would see a Hanover investor with $10,000 of debentures receiving 34,794 new shares. Allied currently has 37.7 million shares on issue.

Allied managing director Rob Alloway said it is “going to take a number of years to work out the portfolio fully.”

“We believe we can add value on some of them (the Hanover loans) quite soon,” he said.

Alloway is heading Allied’s new asset management arm, which will hold the 80% of the loan book that’s not performing. He expects to make a permanent appointment in the next four-to-six weeks.

The ‘tsunami’ of new shares set to flood onto the market is likely to drive the stock lower still, analysts say.

“Clearly there’s going to be a lot of reactionary selling,” Alloway said. “It will be a transfer of wealth from one group to another.”

Allied’s existing shareholders have already backed the deal, which will water their holding down to less than 5%. Last month, Hanover posted a $102 million loss and confirmed the best-case scenario would offer debenture holders 70 cents in the dollar.

The 13,800 Hanover and 2,600 United investors were hoping for full repayment when they approved the moratorium last year.

Hanover and United have $296.8 million of debentures and term deposits and total securities of $317 million. A year ago, the same assets were valued at $516.6 million. Under the deal, Allied will leave $10 million in Hanover for mopping up purposes.

In a statement today, Allied said it is moving to gain formal approvals from the external bank and third party funders of the companies that it will acquire which own properties and which have first mortgage funding from outside of the Hanover and United group.

“We are just completing some important final steps with some of them and we have no reason to believe at this time that we will not get all the approvals we require by later today,” Alloway said, “The financial position of the group will be materially improved by the transaction and this is a position that is being recognised by our banking partners.”

He expects completion will occur tomorrow.

Hanover’s high-profile founders Mark Hotchin and Eric Watson will exit under the deal. Allied plans to follow a strategy employed by Pyne Gould Corp. of creating a new asset management arm to manage the bulk of the mortgages which have gone bad.

That leaves about $50 million of loans “that will be clean and have been reviewed by the trustee and independent directors” and are to be transferred directly into Allied Nationwide Finance, according to chairman John Loughlin.

Businesswire.co.nz

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