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Allied shares slump 32% after trading halt lifted (Update 2)
December 17th, 2009
Allied Farmers shares have slumped after the trading halt on the shares was lifted. The share price initially fell 4 cents, or 21% to 15 cents a share. (Update 1 includes chart, volume traded. Update 2 follows slump to 13 cents per share.)
This follows Hanover Finance investors’ narrow approval to accept a bid from Allied Farmers that will see Allied take control over Hanover and United Finance’s assets. Investors in the two troubled finance companies agreed to swap their debenture debt for Allied shares in move that will see around two billion new Allied shares issued.
For more on yesterday’s vote, see here.
Hanover Finance shareholders were issued shares at 20.7 cents a share and many were expected to dump those shares on the market from as early as next week.
The share price can be followed here.
Just under half a million shares had been traded by 12:09 pm on Thursday. The trading halt was lifted at 11:33 am.
Update 2
At 12:48 pm, there had been just over 570,000 shares traded and the share price had slumped by 6 cents, or 32%, to 13 cents a share.
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December 17th, 2009 at 1:15 pm
So was the right vote actioned yesterday or was it the wrong vote?can we find anyone who can answer the question,who dosn’t mind getting their feet wet.
December 17th, 2009 at 1:31 pm
Actually, if I understand correctly, the shares are today ex-warrants, meaning that, before today, the shares included the rights to get warrants, and today they don’t. So the new price represents a loss to hanover investors, not to necessarily to Allied farmers shareholders. So, if the share price today is 13c, and before today it was 19c, that is 6c/share which may be just the value of the warrants per share.
December 17th, 2009 at 1:43 pm
Jill, the answer is quite simple – it was the wrong vote. The writing was on the wall more than a year ago.
Hanover aside, Allied’s shares were and are not worth anything. They have no liquidity or capital behind them and it would appear they are technically insolvent.
Their last grasp was the takeover of Hanover’s distressed assets/debt. But it is very doubtful they will be around to realize any positive liquidity events. At which time Hanover’s assets will be ripe for the picking.
Being involved in the private equity sector, and watching this story unfold from abroad, I must say Hotchin and Watson pulled ones of the slickest ‘cons’ that I have come across.
I dear say the lawyers involved in this debacle are the only ones who will benefit. Aside from Hotchin and Watson of course.
December 17th, 2009 at 1:53 pm
The share price has dropped by so much already, and Hanover debenture holders haven’t even been buying and selling shares, as they haven’t got them yet. I pity these poor investors, as many may end up selling for 1-5 cents, which is a HUGE loss. Unfortionatley there were a lot of mixed messages in the media, however the real respectable financial people, mainly all said not to vote for it.
December 17th, 2009 at 2:02 pm
Thanks for the above comments ,very enlightening.Now for the second part and of course only hypothetical only alleged in all sense of the word.How would the story of Handover compare with the proven story of the “LEGEND OF BERNIE MADEOFF”?both named company’s are fictional.
December 17th, 2009 at 2:35 pm
Hanovers investors had at least two opportunities to take control of the situation.
Madoffs investors had none.
Beyond NZ.. “Hanover who?”
December 17th, 2009 at 2:45 pm
Exactly Bill!
Two opportunites to actually make the directors accountable and they were either too scared or foolish to do so.
Everyone saw a share price collapse imminent post-merge.
Any last shred of sympathy I had for Hanover investors is gone.
December 17th, 2009 at 2:53 pm
@Ray
A significant percentage (nearly 25%) voted against the deal. I suspect many people didn’t vote, because they didn’t know what choice to make. The people I know who had money in Hanover, didn’t vote for it (nor the deal last year). Certainly there must have been a significant number who didn’t vote, and in a way I don’t blame them, as there wasn’t enough information, and too many mixed messages in the media.
December 17th, 2009 at 3:05 pm
@Bill So the guy who gave the investors no chance got put in jail fore-ever,and the guys who gave the investors 2chances could be named as being good guys for fronting the angry investors,in fact i have read and heard it mentioned in dispatches.Oh i almost forgot only one guy was named as being ok,so why was the other half of the duo missing,would that make him more culpable of alleged misdeeds or silence is golden in NZ?.
December 17th, 2009 at 3:10 pm
Rob – your feedback highlights a reason investors in the US for example must first qualify as a “sophisticated investor” before putting money into this type of private scheme.
The lack of disclosure requirements on Hanovers part, even at the most fundamental level, was quite diabolical and clearly used to their advantage – to create the confusion you have touched on.
December 17th, 2009 at 3:10 pm
@Ray
they actually had a third opportunity. Many hanover investors hung in with them before it went pear shaped but everyone could see that it was going to go bad along time before it did. they just had to have that extra 2% return on offer.
December 17th, 2009 at 3:21 pm
Simly the majority of Hanover investors are too trusting. They trusted PWC to be impatial last year and the same for Grant Samuals this year. Those in the finance industry would know that those paying the fees get the report they want. The other side of the coin is that most people live in hope and will grasp at any straw in the hope they will get all their money back. Professional investors realise that at times you have to face up to a loss and walk away. Thats what Watson & Hoskins have done with their developments funded by Hanover.
Despite the yes vote I would expect there are many breaches Hoskins and Watson made in their duties as directors. The NZ Companies office could still take action against them however dont hold your breath.
December 17th, 2009 at 3:38 pm
I agree with David – now the Hanover investors have shown they truly are fools looking to be parted from their money, their focus should be on legal action against Hotchin, Watson et al for breach fo duties. Amd the government agencies like SFO should be leading that charge.
The secondary scandal in the finance comany collapses is the lack fo prosecution by the so-called regulatory agencies.
December 17th, 2009 at 4:24 pm
If the Allied Shares end up worthless what are the options of the Hanover share recipients,other than continuing their handwringing over the right to use legal methods,if any.
December 17th, 2009 at 4:43 pm
Jill, the Hanover investors have effectively relinquished their rights (and options)
If the Allied shares become worthless, as noted above, the assets will be ripe for the picking.
December 17th, 2009 at 4:46 pm
Bill – you say you are involved in the ‘private equity sector’, yet your analysis is rudimentary. Perhaps you are a secretary? While the money in Hanover is long disappeared, long-suffering Hanover investors nevetheless had a decision to make yesterday. The decision was effectively whether they ‘back-door listed’ their debenture stock. In voting yes and becoming Allied shareholders, the basket of assets they own does not change materially (they went from 100% owners of Hanover assets to 97% of Hanover assets plus Allied assets). All that occured was that their illiquid Hanover debenture stock became slightly more liquid Allied shares. Sure the market will now place a value on those Hanover assets (via the Allied share price), but the reality is that as Hanover debenture stockholders they bore this valuation consequence anyway, it was just less obvious.
December 17th, 2009 at 4:51 pm
@Bill . Collectively Hanover investors do now own Allied Finance. I wonder if some form of consortium could be formed, perhaps setup by the shareholders association or NZX, where they get significant representation on the board. Bruce Shepard should now write to them to possibly head some form of consortium, which will help to protect shareholders. It could be a good earner for him too.
December 17th, 2009 at 4:56 pm
CEO
December 17th, 2009 at 5:02 pm
Clearly – because CEOs of PE firms have SO much time for these type of blogs…
p.s. ‘dear’ in the context of your last para is actually spelt ‘d-a-r-e’.
December 17th, 2009 at 5:02 pm
Collectively Hanover investors do now own Allied Finance. I wonder if some form of consortium could be formed … where they get significant representation on the board.
This is the second time I have seen this type of comment. It’s dumb. No disrespect to the investors of Hanover, but we are talking about a group of unsophisticated investors who made very unwise and as it ends up, imprudent, investments, and you want them running the company? Join the dots.
December 17th, 2009 at 5:14 pm
“Its” what I don’t have time for is stripping down your naive response earlier.
It was an enjoyable discussion. I look forward to the next saga associated with Hanover/Allied. And capitalizing on it.
December 17th, 2009 at 5:16 pm
@Mark That is exactly why it would need to be run by an organistaion who would have the shareholders best interests in mind, and who know what they are doing. Remember Bernard also said that voting for the deal would be the best option out of the two.
Voting for this option was supposed to put investors back in control of their investment. The only way to get that control would be to have control over the company and have board representation. At the moment it is like a tick(Allied) trying to drive an elephant (hanover assets)
December 17th, 2009 at 5:49 pm
Some of the comments about the gullibility of the Hanover investors here amaze me. Given that Hanover was financing property development in prime locations in a country where 90% of the population believe that property is infallible, investing with Hanover could have easily have been “playing the percentages.” I would imagine that most residential property investors know very little about mortgage finance is sourced by financial institutions and the sand upon which the property castle is built. If the property market were to turn, would we be fair in calling all the landlords on their ignorance?
December 17th, 2009 at 6:12 pm
Bill – if the shares of Allied “become worthless”, it is because the market believes the assets are worthless. Duh.
December 17th, 2009 at 6:26 pm
Come on! Share price to 1c….!
December 17th, 2009 at 8:16 pm
@Boris the Frog , it could go down to 0.1 cents, as you can buy in 0.1 cent intervals. I however don’t think may hanover investors are going to sell below 5 cents, otherwise they would have voted against shares.
December 17th, 2009 at 8:47 pm
I would not put too much ‘value’ in the market determining prices, because we know how markets could be manipulated and in fact is being so manipulated all over the world.
Allied shares would sure be manipulated by dumping, short sales, etc to give a chance to some to grab control of it.
It is also a fact that the Hanover investors are now sitting as accidental owners of real estate and that would be of value to whoever controls it. There is a sort of ‘people power’ out there, waiting to be marshalled and channelled, before it dissipates in the ‘market’ shenanigans.
They have to act quickly, other wise one more opportunity would be lost to retrieve some of their money.
And whoever buys Allied shares in the next few months would be having some plan to extract ‘value; from the real estate, I am sure.
December 17th, 2009 at 9:43 pm
J.C.- The question is: Did Hanover investors actually realise they were investing in real estate?
I think most saw a double digit interest rate, Richard Long telling them Hanover could ‘weather the storm’, and many of their peers jumping in boots’n'all.
Of course, they could’ve gone to any bank and got a TD paying 9%pa….but oh no, they had to have the extra 1% return…. Risk? What’s that?
So to be honest, I’m amazed at just how savvy you think the average Hanover investor is/was.
December 17th, 2009 at 10:24 pm
@Ray Actually you are incorrect on a number of points, and I have picked up many people saying the same incorrect statements. When many of the Hanover investors invested, the OCR was low, and banks interest rates were about 4%. Hanover were offering about 8-9%, so that is quite a big difference. When the OCR went up, so did the banks interest rates, but Hanovers rates didn’t, which meant that Hanover investors took their moeny out when it matured, and put it into the bank. The bank was safer, and at this time the first few finance companies had begun to fall over. Around this time Rabobank started trading in NZ, and their online rates were basically as good as Hanovers, (around 8-9%) so I suspect many investors moved their money into it, as it matured. Hanover didn’t offer rates over 10%, until the last few months before they froze their funds.
Hanover relied on a constant inflow of deposits, so when that dried up, they couldn’t then pay out investors as their debentures matured. Also not helped by the directors of Hanover paying themsleves large dividends in the couple of years before the freeze.
How do I know this, becuase I used to have money in Elders then Hanover, and removed all mine a few years before the freeze. I have got Rabobank to thank, that I didn’t have any money in Hanover.
December 17th, 2009 at 11:01 pm
OCR was low? Around 4%?
Bullshit.
http://www.rbnz.govt.nz/monpol/statements/0090630.html
December 17th, 2009 at 11:11 pm
@Ray Again you didn’t read my post, I said banks interest rates were about 4%, not the OCR. The OCR rate was higher than it is now, but lower than the 8.25 it went up to. Thats when banks were making a far higher margin from deposits. Remember many investors were locked in for 36 month terms with hanover. I know people whos depentures were due to mature the day after Hanover locked their funds.
December 18th, 2009 at 5:35 am
Its said “if the shares of Allied “become worthless”, it is because the market believes the assets are worthless. Duh.”
hey Its.. get a grip mate. You’re looking like the fool. The shares will become worthless if Allied cannot get out of the hole it’s digging. Too much bloody debt on the books. Right now the assets are worthless to the market because the loans are upside down. Allied didn’t buy them mate, they just took on debt! That’s what Bill is referring too. And that’s why others in the know probably him included are kicking back watching and reading these stories and blogs waiting for the right time to clean up.
Land doesn’t go away i-d-i-o-t but companies do!!
Its said (they went from 100% owners of Hanover assets to 97% of Hanover assets plus Allied assets). Wrong mate. They now own Allied’s debt. Duh!!!
Pull your head in mate!
December 18th, 2009 at 7:13 am
Rob, I work for one the big 4 banks.
Here are a few of our historical rates over the last 5 years.
02/12/2004: 149 days, min. $10K, 6.50%PA
22/10/2005: 150 days, min $10K, 6.85%pa
22/04/2006: 149 days. min $10K, 7.20%pa
27/09/2006: 180 days, min $10K, 7.40%pa
22/05/2007: 270 days, min $10K, 8.00%pa
The rates continued to rise after this, of course.
You may have got out of Hanover….well done.
Unfortunately, I see a lot more people everyday in my job who looked at our rates at the time and decided an extra 1-1.5%pa return was worth the risk in a finance company.
I call that greed.
December 18th, 2009 at 7:37 am
Its no wonder those banks are all so unpopular with unsimpathetic people like you working in them Ray!
December 18th, 2009 at 7:54 am
Let’s pick on Ray! Why don’t you stick to the thread dogma?
December 18th, 2009 at 7:54 am
The word is unsympathetic, dogma.
And like I said before, my last shred of sympathy disappeared when 75.45% of Hanover investors voted YES on wednesday.
Getting initially shafted is bad enough, but when you continue to choose to be shafted….well……good luck with that.
December 18th, 2009 at 8:16 am
@ We are Stuffed
Ray is clearly kicking people while they are down. im sure he can handle me pointing this out.
@ Ray
Bernard didn’t seem to think it was a bad idea.
December 18th, 2009 at 8:47 am
I feel sorry for the original ALF shareholders who would have bought shares in a rural company several years ago. The ALF board have effectively eroded their investment by this action. By agreeing to this deal the ALF shareholders were accepting an even bigger loss, and many of them would have supported the rights issue at 40 cents earlier in the year. Bruce Sheppard makes a good point that new, capable directors will be needed if this deal is going to work. The leadership has been lacking over the last few years in ALF….just look at the downward trend in their shareprice over the last 3 years. This was even when fonterra was paying out big time.
Why was the deal initiated? Because ALF was not going to get a government guarantee and effectively their finance part of the company was going down the gurgla.
I,m going to sit on my original ALF shares in the hope that they will bounce back sometime in the future.
If anyone can point out any positives for the original ALF shareholder, please enlighten me. The bonus shares only kick in if the deal doesnt weigh up in two years time. If that is the case where will ALF shareprice be then?
December 18th, 2009 at 9:10 am
Why is a bunch of loans called “assets” when they are secured against properites that are worth less than the loans?
December 18th, 2009 at 12:27 pm
John W / Bill (you are obviously the same person) – I would love to debate this, but I can’t actually understand what you are saying…what on earth are ‘upside down loans’?
I wouldn’t go spending quite yet all the profits you will make when you “kick back watching and reading these stories and blogs waiting for the right time to clean up…”
December 18th, 2009 at 12:45 pm
@Ray, I definitely see you point of view, and your chart does show the problem, where bank rates rose over time to almost match finance company rates, which was the reason people moved away from more risky finance companies, back into banks. I think part of the problem with Hanover investors was that they are the type of people who put their money into something, and keep it there, as they are so used to putting their money in the bank where they just keep it there.
In 2004-5 Hanover were probably offering rates about 3-4% higher than the banks, and on a 36 month term, those investors got locked in, and then couldn’t get their money out of Hanover when the first dominos of finance companies began to fall. Thus just before their deposits were due to mature, their money got frozen. Banks also fail so locking all your savings into long term deposits, is not a good idea.
December 18th, 2009 at 1:53 pm
Banks also fail? NZ banks?
Mate, you have no idea what you’re talking about.
December 18th, 2009 at 3:15 pm
It’s… I’ll take that as a compliment.Cheers mate
December 18th, 2009 at 5:11 pm
Three things have come about as a result of the yes vote.
1. AFL shareholders take an immediate lose on their shares but have had the possibility of a total loss removed (in the short term) as the equity ratio of the company has sunstantially increased. I also assume there is some increase in cash flow.
2. Hanover investors now have a more transparent view on the value of their investment and can cash out early if they are prepared to take a substantial loss. In gaining this they have lost any remedies they had against the directors which is most unfortunate.
3. Hanover directors Hotchin & Watson get a get out of jail free card.
December 18th, 2009 at 5:24 pm
now all that’s needed is for hanover to buy up all of the shares of allied with the $20m that was previously pledged by hotckin & watson for the moritorium (once/if the share pric e hits 2c) and the entire debacle will have an ironic but sad sad end.
December 18th, 2009 at 5:27 pm
Follow the money and you will see the crime/crims.
Both buying and selling , both assets and stocks, that is.
December 18th, 2009 at 7:20 pm
FAI Money being advertised on this web site = bad taste
December 18th, 2009 at 10:16 pm
@ Ray –
“Banks also fail? NZ banks?
Mate, you have no idea what you’re talking about.”
Lehmann Brothers (USA), Barclays (UK), oh, and BNZ (NZ – twice; last time in 1989-90; National govt bailed it out).
Priceless.
As I see it, Allied-Hanover investors only have 2 options:
1) cash up the firm now, and salvage what they can from the firesale.
2) scramble some more capital from somewhere, and invest it in prepping the remaining Hanover assets for sale over the next year. Hard I know, but should realise a better value than 1).
December 18th, 2009 at 10:45 pm
Think I might gamble a weeks wages, what 2k buys 200k shares ? Cheaper than wallpaper.
December 18th, 2009 at 10:54 pm
@Ray, You work for a NZ bank, but you didn’t know BNZ failed? PSIS also failed, although strictly it isn’t a bank. Also look at all the huge banks overseas that have failed and needed bailing out just in these last few years.
December 21st, 2009 at 9:03 am
…….. gah!
yep, we went under……. in 1992!!! While we’re back there wearing flouro jackets with flat-top haircuts, Countrywide (everyone remember those monkeys? horrible, horrible service) bit the dust and Postbank + Trustbank got eaten by ANZ & Westpac respectively.
Currently, the 4 main banks in NZ are in the top 28 safest banks in the world. All are well-capitalised and on top of this have a GOVERNMENT GUARANTEE.
How much safer do you want??
To argue that it’s a risk having a term deposit in one of these banks is ridiculous, frankly. Cash holdings should ALWAYS make up a portion of an investment portfolio.
Bob & Rob-I deal with too many people who think their funds are at risk due to mis-conceptions that I would not expect to see on a financial website.
And yes, I am vaguely aware of the biggest financial crises of our times….
bob- Lehman Brothers was NOT a retail bank. And I was referring ONLY to major NZ retail banks in 2009.
Next time i’ll make it crystal clear!
Right, back to work on this stack of home loan applications….