Capital crucial to Allied survival

30-08-2010 | Alan Williams

A substantial capital raising could still be required if Allied Farmers Ltd is to be sure of keeping its rural division in business. Alan Williams reports.

Allied Farmers (ALF) has financial obligations to its subsidiary Allied Nationwide Finance (ANF), even though it is in receivership, and also has to negotiate its own debt arrangements with Westpac, which will require repayment of borrowings.

ALF has an extension on its $16.9 million debt to Westpac out to March 31, but is required to meet milestone requirements in the meantime.

Asked if having ANF in receivership guaranteed the survival of Allied Farmers Rural, group managing director Rob Alloway said that it provided a "better chance''.

ALF put a planned $19.3 million capital raising on hold while trying to resolve the ANF issues with trustee Guardian Trust. Alloway said the directors are talking to the underwriters McDouall Stuart (a broking firm controlled by ALF director Andrew McDouall) about that funding.

The group's results for the year ended June 30 were due to be released to the NZX this Monday (August 30). The market will be interested in how many, and how soon, former Hanover Finance assets can be turned into cash and put into the remaining ALF business.

Alloway said the board was also talking to the ANF receivers Kerryn Downey and Andrew Grenfell, of McGrathNicol, about the ALF-ANF related party transactions.

These involve a credit enhancement facility, under which ALF owes ANF about $9.4m, and also a debt factoring arrangement under which in June just over $20m was owed. The debt factoring covered rural services funding to clients and some of this will have been repaid in the normal course of business.

The balance owing is now thought to be in the region of $15m to $20m, and over time as normal client debts are repaid, it is possible that the liability will not fall on the parent company, said Bryan Connor, general manager for corporate trusts at Guardian Trust.

Alloway said that at this stage it was "business as usual'' for the rural division. "We are running pretty hard to make it as efficient as we can.''

ANF was put into receivership by Guardian Trust on August 20 after ALF decided it could no longer provide capital to keep it going. About 4500 investors were owed about $130 million. Guardian Trust had alleged a breach in ANF asset requirement ratios.

Connor said Guardian Trust was concerned that ANF had to repay about $70m to debenture holders over the next six to eight weeks up to the expiry of the company Crown deposit guarantee cover.

ANF had disputed the breach allegation, but John Loughlin - who resigned as chairman of both the parent and subsidiary company immediately after the receivership was announced - said that Guardian Trust had been trying to do the right thing by investors. "The company was very tight on liquidity and the board would not have let it go out of the government guarantee unless we had been sure of being able to continue.''

Loughlin said the company thought it could have taken actions to keep going and would have liked more time to prove that. Having to suspend the ANF prospectus limited the group funding options.

"Guardian's actions were reasonable and we were thinking the same way. They played safe by the debenture holders.''

There will be questions over Loughlin's resignation while the group future is still being resolved. "I resigned because the results of the finance initiative were not successful,'' he said. "The board was responsible, it happened on my watch and I'm taking responsibility for the board.''

ALF shares were trading round the 2.6c to 2.7c mark last week.

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