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Home / Business / Economy / Official Cash Rate

Allied Farmers hopes to raise $19.3 million

Tamsyn Parker
By Tamsyn Parker
Business Editor·NZ Herald·
3 Aug, 2010 04:00 PM3 mins to read

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Rob Alloway. Photo / Dean Purcell

Rob Alloway. Photo / Dean Purcell

Most of the money raised by Allied Farmers will be used to pay back a loan to Westpac, chief executive Rob Alloway says.

The rural financing company, which last year acquired the assets of Hanover, yesterday revealed plans to raise $19.3 million in new capital through an institutional placement and
rights issue.

The placement will raise $2.25 million at 2.5c a share and shareholders will have the right to buy one new share for every three they already hold also at 2.5c - a significant discount to the 4.1c the shares were trading at before the raising was announced.

It will be partially underwritten by broker McDouall Stuart up to $9 million, guaranteeing at least that much will be raised.

Alloway said that while the capital raising would come as a surprise to some, Allied had been working on the deal for some time and had previously alluded to it.

"We are certainly going through a balance sheet restructure and the number one priority is reducing debt ... we want to get our banking arrangements tied up. We want to have our term debt reduced."

Last month Allied reached an agreement with Westpac to extend its banking facilities until March 31 provided it met certain debt reduction milestones. It now owed Westpac $16.5 million with a further $2.5 million overdraft which was not completely drawn down.

Alloway said the bulk of the money raised would be used to pay down the Westpac loan, but Allied would also try to use some to invest in the rural sector.

The banks had been tough on the rural sector and Allied saw good opportunities to invest now when it was coming off a low base.

The capital raising coupled with recent asset sales like that of Queenstown's Five Mile would put the company in a good position.

But Alloway admitted it was a tough market to raise capital in at the moment.

Asked if he thought many former Hanover investors would be able take up the rights, he said: "That is why we have priced it attractively. We also think there could be significant value in the rights trading."

Those who did not want to or could not afford to take up the rights would be able to trade them on the NZX.

Market commentator Arthur Lim said he expected the capital raising to be a tough ask for former Hanover investors.

"The people you have to feel sorry for are the Hanover investors. Most have got in by accident, not by choice. Many of them would not know what a rights issue is."

He expected a shortfall in the amount Allied would be able to raise from former Hanover investors.

Shareholders Association chairman John Hawkins said he expected former Hanover investors would be feeling pretty shell-shocked at the news of the capital raising.

But he said investors needed to understand if they did not take up the rights issue their share of the company would be diluted.

"They need to read the paperwork carefully and if they don't understand it get advice."

Even if shareholders were unable to afford to pay out more money to buy their rights, they might be able to sell them for a price, Hawkins said.

Details of the offer are expected to go out next week with the rights offer opening on August 11 and trading ending on August 24.

New shares will be allotted and begin trading on September 6.

Allied shares closed down 1.2c, or 22 per cent, at 4.2c yesterday.

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