PGGW answers the big questions

The share price of PGG Wrightson continued its recovery last week after a dramatic crash during February. At one point the shares lost more than half their value, hitting a year low of 59c and wiping more than $200 million off the market capitalisation of the rural services business.They closed up 2c on Friday at $1.22. The share price fall happened because of investor concerns about debt levels, the downturn, the potential cost of a failed partnership deal with Silver Fern Farms, and the refinancing of 30 % shareholder (and PGG chairman Craig Norgate's investment vehicle) Rural Portfolio Investments reports The NZ Herald. However, PGG reached agreement with ANZ, BNZ and Westpac to refinance a $475 million loan facility, financial results were better than some expectations and Silver Fern Farms agreed to mediation. And last week Rural Portfolio secured funding to cover $46.3 million due to be paid for redeemable preference shares on April 15. Market commentator Arthur Lim says: "One's got to say it's a credit to Craig Norgate and the company that they've systematically dismantled those concerns one by one." The PGG refinancing includes a $125 million amortising loan repayable at the end of 2010 and a $275 million loan repayable at September 30, 2011. PGG expects to repay the amortising loan through improving operating cashflow by targeting a nil cash dividend and a number of cost savings. The company creates significant free cashflow, the report says, with little capital demand, and if profit is between $40 million and $45 million for the next 20 months PGG should be able to generate approximately $80 million in cashflow to finance the repayment, leaving about $45 million to be found through working capital efficiencies or asset sales.