Former Hanover debentureholders offered yet more Allied Farmers shares

Former Hanover debentureholders offered yet more Allied Farmers shares

Allied Farmers, which acquired Hanover Finance's business last December, is looking to raise up to NZ$19.3 million through a partially underwritten renounceable rights issue and share placement after a capital raising milestone was included in a recent loan extension from the finance company and rural services firm's bank Westpac.

Allied Farmers said the capital raising was being underwritten by McDouall Stuart Group for NZ$9 million and consisted of two parts. These are an institutional placement raising NZ$2.25 million at 2.5 cents per new share, and a rights issue to current Allied Farmers shareholders entitling them to 1 new share at 2.5 cents for every 3 shares held.

Allied acquired the Hanover group's finance interests through a shares for debentures swap valued at NZ$396.2 million last December. It has since slashed the carrying value of these assets by 69% to just NZ $124 million. The deal saw some 16,400 Hanover Group investors issued 1.9 billion Allied shares valued at 20.7 cents each.

Allied chairman John Loughlin encouraged existing shareholders to take up their rights, to both support the company and to avoid having their holdings diluted by the issue of new shares in the capital raising.

“In raising any capital we are mindful of the interest that has been shown by a number of our investors in supporting the company," Loughlin said.

"We have decided that the rights issue with a placement is the best current option for us to bring in fresh capital to launch some of our planned initiatives and gives us the time needed to realise good value from our asset portfolio, and continue our focus on reducing debt."

Being sold at 2.5 cents each, means the new shares are being offered at a discount of about 3 cents to Allied's current share price of about 5.5c.

"In addition, to protect investors in the capital raising from any future erosion in the net tangible assets of Allied Farmers, the number of shares issued will be increased next year if the Group’s net tangible assets are less than the issue price at the June 30, 2011 financial year end. The details of this adjustment mechanism will be set out in the prospectus," said Loughlin.

Given continuing challenges in the rural and finance sectors, combined with the tough current market for the realisation of the ex-Hanover and United Finance assets, it was appropriate to recognise and protect the downside risk for investors, Loughlin added.

Allied Farmers recently announced the sale of stage two of Queenstown's Five Mile development, one of the Hanover properties it inherited, to an un-named buyer for a price managing director Rob Alloway says is "well above" the NZ$23.2 million his company valued the property at in its half-year accounts. However Uno Finance, which held a prior charge over the property, will take NZ$9.3 million of the sales proceeds.

Allied suggested today there wouldn't be a rush of further sales in the short-term.

"In a market in which demand and finance for property development was flat, realising good value from further asset sales would continue to take time.”

Meanwhile, the rights to new shares are renounceable.

"This means that shareholders who do not wish to subscribe for more shares can sell their rights, which may have a value, through the NZX rights trading facility. However, for those shareholders who want to invest more than their entitlement, provision has been made for oversubscriptions (allowing shareholders to apply for additional new shares)."

Allied has also provided the sub-underwriters with a right, but not obligation, to apply for any shares not taken up in the offer or committed under the underwriting.

The company recently announced two extensions to its NZ$19 million worth of loans from Westpac, which takes them through until the end of March next year.

"The recent extension to our banking arrangements with Westpac, albeit with restructuring and capital raising milestones that are required to be met, signalled confidence in our plans, which we too are confident provide a solid foundation for our future growth,” Loughlin said.

Allied also has about NZ$30.8 million of additional bank borrowings secured over property assets acquired from Hanover and sister company United Finance. 

 The prospectus for the capital raising should to be lodged early next week and be mailed to shareholders from about August 11.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

2 Comments

Horace, I have spoken to Rob Alloway today and there will be more coming later. Also, we did a Double Shot interview with him a while back - http://www.interest.co.nz/news/allied-farmers-alloway-says-hanover-inves...

And why specifically do you say neither of us understands the subject well?

Anonymous,

We welcome your leads. Please email gareth.vaughan@interest.co.nz and bernard.hickey@interest.co.nz

You seem to know more than any of us about what happened at 5 Mile. We welcome your details.

btw the video discussion is designed to explain the background to the issue (and there's plenty of that) that we've gleaned over the last 3 years.

It wasn't designed to break new news. Not everyone knows the background to the daily news.

We've broken plenty of news on Allied, Hanover etc and interviewed the principals involved several times, as Gareth mentioned above.

cheers

Bernard