Allied puts cash raising on hold

Photo / Herald on Sunday

Allied Farmers has put its $19.3 million capital raising on hold while it talks to the trustee of its subsidiary Allied Nationwide Finance over a disputed trust deed breach.

Allied Nationwide, whose deposits are Government guaranteed until October 12, told the market late on Friday it had received notice from New Zealand Guardian Trust of a breach in its ratio of liabilities to tangible assets.

Although the company disagreed with the trustee's view, Allied Farmers chairman John Loughlin said it had decided to delay its capital raising while Allied Nationwide provided reassurances to its trustee.

"Our preference is for the prospectus to disclose the very latest information, and with our trustee having some questions over our finance subsidiary we feel it is prudent to delay the prospectus."

The prospectus had been due to go out to investors this week with a one-for-three rights offer.

Loughlin did not wish to put a timeframe on the delay but said he expected it to be short.

"We believe the trustee's concerns can be resolved quickly and we have been working towards a speedy resolution.

"The trustee is being cautious and we just need to work with them to ensure they have the level of comfort they need to allow Allied Nationwide's current prospectus to be reinstated, therefore better positioning Allied Farmers to go ahead with the prospectus for the planned capital raising."

Loughlin said the issue around Allied Nationwide was its future liquidity position and how it would be funded after the Government's guarantee expired.

The finance company does not meet the requirements to be covered under the extended guarantee scheme because its credit rating is too low.

Allied Nationwide has $144 million in debentures and its latest prospectus shows reinvestment rates have been dropping.

In the six months to April 30, its reinvestment rate had averaged 48.2 per cent but in May it dropped to 29.3 per cent.

The company said the declining rate had been taken into account as part of its liquidity management forecasts and it expected debenture-holders to be repaid using existing liquidity, repayments of principal and interest from borrowers, sale of repossessed security assets and repayment of obligations due to the company from its parent, Allied Farmers.

Allied Farmers has obligations of close to $34 million to Allied Nationwide including a $10 million credit enhancement facility, $20.8 million owed under a long-standing debt factoring arrangement and an additional $3 million.

The prospectus reveals Allied Nationwide needs to replace a $86.2 million loan facility from BNZ and needs more capital to satisfy new non-bank capital adequacy rules expected to come into force either in December or January.

Loughlin said the finance business had been self-funding for the past three years and it was confident the company would continue to raise sufficient funds to pay back debenture holders.

But it was possible Allied Farmers would have to provide additional capital to its subsidiary.

That could be in the form of transferring some of the assets acquired from Hanover or United Finance.

Guardian Trust general manager of corporate trusts Bryan Connor said it had brought up the trust breach issue with Allied after commissioning an independent report by McGrath Nicol.

Connor said the company had made good progress on the gap in its breach and it was close to resolving the issue.

He said the problems were linked to financial breaches, not liquidity issues, and attributed them to tough market conditions.

Connor said more capital would resolve the issue but would not say how much the company needed.

Allied Nationwide had been given 14 days to resolve the trust deed breach.

Allied Farmers shares yesterday closed down 22 per cent on 3.5c.

Under pressure:

Allied Nationwide Finance

* Owes $144 million to debenture holders.

* Trustee claims it is in breach of trust deed.

* Reinvestment rate has fallen to 29.3 per cent.

* Needs to replace a $86.2 million loan facility from BNZ.

* Needs help to meet new non-bank capital adequacy rules.