Allied Farmers' finance company collapses

Allied Farmers managing director Rob Alloway Photo / Dean Purcell

Allied Nationwide Finance has collapsed after missing payments on debenture maturities wiping a large chunk off the balance sheet of its parent company, Allied Farmers.

The finance company is covered by the Crown retail deposit guarantee scheme. Treasury said 4500 depositors with $130 million of deposits are affected.

Allied Farmers managing director Rob Alloway says it made the decision to protect its shareholders and it will be business as usual for the parent company.

Allied Nationwide was yesterday placed into receivership by Allied Farmers after missing payments to its debenture investors on Thursday.

Treasury deputy secretary Philip Combes said the Crown stood fully behind its guarantee commitments.

"We expect an orderly process of payment to eligible Allied Nationwide Finance depositors," he said.

Yesterday was the last day Allied Nationwide had to resolve concerns about a disputed trust deed breach with its trustee New Zealand Guardian Trust which had forced the company to withdraw its prospectus.

Allied Farmers also put a $19.3 million capital raising on hold.

Alloway said Allied Nationwide had been significantly affected by the withdrawal of its prospectus following the allegation of a breach of its trust deed received by the company on August 6.

"This alleged breach, which the Allied Nationwide Finance board and management continue to dispute, had a significant impact on the company's ability to manage liquidity and capital over the coming months. Allied Nationwide continued to require funding from Allied Farmers on a scale that it could not justify in the interests of its shareholders.

"As a result of the trustee's actions Allied Farmers has been asked to support its finance subsidiary with levels of funding that we cannot sustain," Alloway said.

Market commentator Arthur Lim said the receivership was the right decision but would see a large chunk of Allied Farmers' balance sheet disappear.

"For Allied Farmers it means a chunk of their shareholders' funds have just disappeared off the face of the earth."

"In my mind the implication of Allied Nationwide going into receivership is double fold. What ever is represented on Allied Farmers' balance sheet as an investment in Allied Nationwide will now be zero. So, they will take a hit from shareholders' funds by the value of the investments in the finance company."

Lim said despite Allied Farmers' exposure to Allied Nationwide, the company could still survive as Allied Nationwide was an investment vehicle and operating as a subsidiary of Allied Farmers.

Alloway said it was "business as usual for Allied Farmers".

The company was now in "constructive discussions" with the underwriter involved in its capital raising and would make a further announcement when information was available.

Investment bank McDouall Stuart said it would underwrite part of the capital raising to $9 million.

Credit rating agency Standard & Poor's also lowered its rating on Allied Nationwide to D from CC, or to default from highly vulnerable, as a result of the company's collapse.

The board also announced the resignation of John Loughlin, the chairman of both Allied Farmers and Allied Nationwide Finance.

NZGT appointed Kerryn Downey and Andrew Grenfell of McGrathNicol receivers of Allied Nationwide.

Allied Farmers bought the loan book from Hanover Finance directors Mark Hotchin and Eric Watson last December.

Just before Christmas, shares in Allied Farmers dropped by more than 30 per cent after the issue of 1.9 billion new shares to the former Hanover Finance investors.

Government payouts

Defaults to date covered by the Government's deposit guarantee scheme:

* Allied Nationwide Finance: $130m
* Mascot Finance: $69.4m
* Vision Securities: $30m
* Viaduct Capital: $7.3m
* Rockforte Finance: $3.2m
* Strata: $300,000
* Total: $240.2 million