Allied Farmers is urging former Hanover Finance debenture holders, who have seen the value of their Allied Farmers shares fall more than 75% in just six months, to be patient. It says they’ll eventually see their shares rise in value and perhaps receive dividends.
Rob Alloway, Allied Farmers’ managing director, told interest.co.nz in a Double Shot interview that there was still a lot of work to do to turn the struggling business around.
“I’m under no illusion share price is a factor of business performance and if we can demonstrate that our operating businesses and our investments perform, and we’ve got a sensibly structured balance sheet and a strong and visionary board and executive team, then subsequently we will be rewarded with an increase in share price,” Alloway said.
Rural services and finance firm Allied acquired the Hanover Group's finance interests in a shares for debentures swap valued at NZ$396.2 million last December. The 16,500 Hanover investors were issued Allied shares valued at 20.7 cents each. They are now worth just 4.8c.
Alloway acknowledged Allied had been hit by a number of disappointing set backs, including its exclusion from the stock exchange’s benchmark NZX50 index, which would have seen investors with index tracker funds buy Allied shares. The company has also written down the value of the Hanover interests it acquired by 69% to NZ$124 million.
The NZ$7 million to NZ$8 million in cash Allied has so far generated from the Hanover book has been used to cover operating costs and pay down debt on the Hanover property assets, said Alloway. As of December 31 Allied had NZ$30.8 million of bank borrowings secured over property assets acquired from Hanover classified as current meaning it was due for repayment within 12 months.
“I think given time there will obviously be more asset realisations, more cash deployed and a strengthening of the balance sheet,” said Alloway. “And it’s really to the (Allied Farmers) board and senior executives to structure the business appropriately and demonstrate to people that there is something that’s profitable and sustainable to come out of this.”
He noted that prior to the Allied deal Hanover investors were being paid back 2c a quarter which was the “quality capital” at the front end of the group’s loans.
“And how much they would have got if they’d stayed where they were, I’m not in a position to speculate.”
As for any potential dividends, Allied was clearly in no position to return capital to investors at the moment.
“When it comes to dividend policies and things, I think dividends are a wee way off yet, and I’d be imprudent to say otherwise at the moment,” said Alloway.
Questioned on whether the beleaguered Hanover investors might have got back more money by now if the group had been tipped into receivership, Alloway said the track record of winding up finance companies wasn’t that good, pointing to Capital + Merchant as an example and noting it would be interesting to see what flows out of Strategic Finance’s receivership.
“There’s not much left by the time these things are wound up,” said Alloway. “We hope we’ll get a better outcome than achieved in other instances.”
Hanover, plus sister firms United Finance and Hanover Capital, froze about NZ$554 million owed to 16,500 investors in July 2008, blaming deteriorating market conditions and uncertainty over borrowers' repayment abilities. In December 2008 investors overwhelmingly supported a moratorium proposal that pledged to repay them over five years.
Allied is due to make a NZ$5 million payment to former Hanover owners Mark Hotchin and Eric Watson on June 30 as part of the acquisition of Hanover's finance interests. Alloway said the firm was contractually obliged to pay this.
Interest.co.nz's Deep Freeze list of finance company failures shows over NZ$6.6 billion has been frozen in almost 200,000 accounts since the crisis began in 2006.
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