A big rise in PGG Wrightson Finance's annual loan impairments includes a provision on the company's loans to the failed Crafar Farms.
The rural lender's June year loan impairments jumped to NZ$8.9 million from NZ$2.9 million in the previous year, its annual report shows. This was primarily due to dairy sector exposures, including the Crafar Farms, CEO Mark Darrow told interest.co.nz.
"There is an impairment cost this year from the Crafar loan," Darrow confirmed.
Darrow said he couldn't say how much the Crafar impairment was for because of privacy reasons and because the farms were in receivership.
"It's an unrealised provision because we don't know whether the UBNZ deal will proceed because Overseas Investment Office (OIO) approval is still pending," Darrow added.
"They (the farms) are very good assets with value."
In a Double Shot interview last month Darrow said PGG Wrightson Finance's balance sheet exposure was about 4% of the total net money loaned to the Crafars by the three lenders.
The Crafar farms, New Zealand's largest family owned dairy business, were put into receivership last October owing about NZ$216 million to their lenders Westpac, Rabobank and PGG Wrightson Finance after interest.co.nz revealed animal welfare issues at the farms. Based on the NZ$216 million figure, PGG Wrightson Finance's slice of the Crafar loan would be worth about NZ$8.6 million.
Darrow said he didn't know any more about the OIO review of the UBNZ-Natural Dairy Chinese application, associated with businesswoman May Wang, for consent to buy the Crafar farms than what the OIO was saying. Last Friday OIO manager Annelies McClure hit out at a New Zealand Herald report that suggested the OIO had nearly completed its review of the application and would either decline consent or apply significant constraints.
“The information published by the New Zealand Herald is completely incorrect,” said McClure. “The OIO has not rejected nor suggested or imposed significant constraints on the application or Natural Dairy.”
No decisions have been made, she said, with the application still be assessed with no statutory timeframe for a decision to be made within.
"We have written to Natural Dairy seeking further information and have yet to receive its response,” said McClure.
Separately, Darrow said PGG Wrightson Finance had seen strong reinvestment rates, in the "mid 80s" (about 85%), continue through July and August. June saw the company's reinvestment rates hit 90%, a monthly record equal with January and well ahead of the 77% average over the last three years. PGG Wrightson Finance, which is covered by the Crown retail deposit guarantee scheme, has also been accepted into the extended Crown retail deposit guarantee scheme which starts on October 12, running until December 31 next year.
The company posted record net profit after tax of NZ$8.9 million in the June year, up from NZ$7.8 million last year, helped by a NZ$2 million Crown guarantee fee refund from Treasury related to its obtaining a BB credit rating from Standard & Poor's.
With a total of NZ$530.1 million of loans and receivables outstanding at June 30, PGG Wrightson Finance said 90-day past due assets, including impaired assets, had more than doubled to NZ$74.4 million in the year to June 30 from NZ$36.4 million a year earlier.
The company paid an annual NZ$5 million dividend to its parent PGG Wrightson compared to no dividend the previous year.
Darrow said the business had been through "the ultimate stress test" over the past couple of years. To come out with a good bottom line showed how "robust" its business model, which sources funding from debentures, bonds, equity, deposits and bank loans, was.
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