PGC aiming for $270 million

Chairman Sam Maling (left) and director Bryan Mogridge front up to outline the capital raising. Photo / Greg Bowker

Pyne Gould Corporation has locked in at least $237 million in new capital in its long-awaited recapitalisation plan unveiled yesterday but may raise more than a quarter of a billion once an institutional placement and share purchase plan are completed.

The financial services group has ambitions of carving out a bigger position in the wealth management, finance, and ultimately banking markets.

It will raise the initial $237 million in a pro rata six-for-one rights issue fully underwritten by First NZ Capital.

The exercise price for the tradeable rights is 40c, a 60 per cent discount to PGC's $1 share price immediately before yesterday's announcement.

Interests associated with George Kerr, one of the architects of the company's new strategy and a descendant of one of its founders, will tip at least $50 million into the company.

Kerr and his family, who own 10 per cent of PGC, will sub-underwrite the rights issue to the tune of $27.2 million as well as taking up all their rights at a cost of $23.68 million.

Kerr will also participate in a subsequent institutional placement which may raise up to $30 million.

The capital raising plan prevents Kerr's stake from rising above 19.99 per cent thereby avoiding Takeovers Code complications.

PGC may raise up to $3 million in a share purchase plan which allows shareholders to buy up to another $5000 worth of shares each, taking the potential total to be raised to a maximum sum of $270 million - well north of the $160 million to $200 million bandied around the market in recent weeks.

"It's a considerable capital raising, there's no doubt about that," director Bryan Mogridge, who chaired the committee which formulated the plan, said yesterday.

"Our intention was to do this properly and to have the company well positioned to take advantage of what we believe are opportunities."

In order to realise its aspirations, however, the company must first repair its balance sheet, which has been battered by big write-offs on imprudent property loans made by finance company subsidiary Marac.

About $160 million of the cash raised will be used to recapitalise Marac as the company works towards obtaining a banking licence.

There will be a $35 million direct equity injection into Marac and a further $125 million will go towards purchasing its impaired property loans.

Even so, Mogridge said Marac was unlikely to gain its banking licence this year although this was being pursued "as hard as possible".

Of the remaining proceeds, about $50 million will be retained by the company for investment in existing activities including its asset management strategy and "to capitalise on any value-enhancing consolidation opportunities that may arise in the finance sector".

A further $35 million will be used to eliminate debt at the parent company level and $13 million will go on capital raising transaction fees.

Mogridge refused to publicly commit to participating in 30 per cent-owned PGG Wrightson's pending capital raising.

"We will need to judge our participation in that, firstly once we complete our capital raising to see how much we do have, and then how that would stack up against other investment opportunities."

The market initially welcomed yesterday's announcement, sending the company's stock 18c higher, but by the close of trade it was down 1c at 99c.

Brokers were generally positive about the plan, with ASB Securities' Stephen Wright commenting that with a 40c exercise price, new and existing shareholders would likely find it appealing.

"Having said all that, this is a different kettle of fish [to recent capital raisings such as Nuplex and Fisher & Paykel Appliances].

"We're talking about what is mainly a finance company and secondly a company with exposure to PGG Wrightson which on its own count needs to raise money."

CAPITAL RAISING

Pyne Gould Corporation:
* Fully underwritten six-for-one rights issue raising $237 million.
* Institutional placement via bookbuild to raise up to $30 million.
* A share purchase plan to raise up to $3 million.
* The exercise price of 40c is at a 60 per cent discount to the company's pre- announcement share price.
* The maximum $270 million being sought dwarfs PGC's pre-announcement market cap of $98 million.