Slice of PGG Wrightson may be sold

Craig Norgate. Photo / Richard Robinson

Market commentator Arthur Lim says a key stake in rural supplier PGG Wrightson could be up for sale after Craig Norgate's investment company warned it does not have enough money in its account to meet the next dividend payment to its preference shareholders.

Rural Portfolio Capital, the financing arm of Norgate and the McConnon family's Rural Portfolio Investments, which owns 12.5 per cent of Wrightson, told the market late on Thursday it had breached a trust deed by failing to have enough money in its escrow account to make an October payment.

It has 30 days to remedy the breach. In its statement, Rural Portfolio Capital said it planned to meet the deadline and had also asked for an extension from its other funders to allow it to pay them back.

South Canterbury Finance is understood to be one of the companies which it owes money to.

Yesterday Craig Norgate, who stepped down from the Wrightson board this year, said there was not much more that he could say, other than the statement to the exchange, without breaching disclosure rules.

"We have got a counter-party involved," was all he would say.

A further announcement was expected to be made as soon as possible, according to the statement.

Rural Portfolio Investments (RPI) warned in February it could be forced to sell part of its stake in Wrightson if the share price of it and its other investment, New Zealand Farming Systems Uruguay, did not improve.

At the time Wrightson's share price was 59c. Yesterday it was trading at 55c.

RPI gets most of its cash from dividends paid by PGG Wrightson. Its share in the business was significantly diluted last year when the company undertook a rights issue to raise new capital.

Compounding that, Wrightson did not pay a final dividend in its June 30, 2009 year and has said it will not pay a dividend in the June 30, 2010 year.

In notes to its half-year accounts, RPI said it was reviewing its refinancing strategies to help pay the dividend to preference shareholders.

"This funding may be sourced from either a renegotiation of existing borrowings, further term borrowings or a sale of available assets, subject to lender consents."

Under its trust deed it can only sell 48.457 million shares in Wrightson - a 6.4 per cent stake.

"The RPI Group will seek to use these shares as security for further borrowings, or sell this parcel of shares to facilitate repayment of existing borrowings to New Zealand financial institutions and provide funding to assist with meeting future obligations to [preference shareholders]."

Their $60 million in preference shares listed on the New Zealand debt market are supposed to pay 10.14 per cent interest on a six-monthly basis.

Lim said RPI held a strategic stake in Wrightson and selling it could significantly change the ownership of the business. "Wrightson could effectively go into corporate play."

Chinese agriculture company Agria presently owns 19 per cent of the business and would have to go through a takeover offer if it wanted to go above 20 per cent.

Wrightson managing director Tim Miles said in October it was not the intention of Agria to take a controlling stake in the business.