Wrightson soars after Chinese buy stake

Tim Miles. Photo / Simon Baker

PGG Wrightson has staved off market fears of a potential collapse after reaching a deal to sell a 13 per cent stake to Chinese agricultural company Agria.

Shares in New Zealand's largest rural services provider soared more than 20 per cent yesterday as investors welcomed the news which also includes a 10-year strategic co-operation agreement.

Shares closed up 13c at 78c.

Debt-pressured Wrightson said Agria would pay 88c per share for the stake, a total of $36 million which would be put towards a $200 million debt bill which Wrightson must pay by March.

The deal is conditional on approval from New Zealand's Overseas Investment Office, Wrightson finding an underwriter for its expected capital raising and Agria being satisfied that sufficient funds will be raised to pay the debt.

Wrightson chairman Keith Smith said the OIO approval was close to being finalised and it was considering capital raising options which included a potential rights issue, likely to be announced in early November. Agria is expected to take part in the capital raising but won't say to what extent until the details are revealed.

Smith said the investment by Agria was not a takeover but both businesses wanted Agria to become a "significant shareholder" over time.

Managing director Tim Miles said the company had talked to a number of parties before settling on the deal with Agria. It had selected Agria because it had the potential to add value for shareholders and become a long-term partner.

Miles said the relationship with Agria would allow it to link to the world's largest market but Agria would also receive mutual benefit from Wrightson's rural experience. "There is no doubt this will be two way. We can help Agria and Agria can help us."

The companies would work together on developing commercial seed cultivars, as well as establishing a livestock trading platform in China, and rural services.

Through Agria Miles said there was also more potential for funding options of its finance business as well.

Up until recently there had been speculation Wrightson would sell off the finance business but Miles said yesterday it would now be considered a core asset.

Agria chief executive Xie Tao said he had only been with the company for a month after spending more than 20 years working for PriceWaterhouseCoopers in China, but he saw the new relationship as a marriage.

Agria would use its relationship with the China National Academy of Agricultural Science to gain access to its seedbank and its research and development resources.

The academy had thousands of scientists working for it but did not do well when it came to commercialising its research. Agria would focus on doing that with the help of PGW.

"I believe with Agria and PGW forging such a marriage with commercial experience from PGW and getting access to one of the leading seed banks in China, we could have a very successful future."

Asked how much of a stake Agria intended to take in Wrightson, Smith said: "I think that is what will develop over time."

Miles said he did not believe they would take a controlling stake. He said Wrightson would remain a New Zealand business.

Miles said the relationship was likely to create more jobs in New Zealand, South America and Australia.

"There is no intention the business will be picked up and moved to China."

Agria is currently undertaking a structural review and has been late filing its December 2008 accounts with the New York Stock Exchange.

Market commentator Arthur Lim said the deal was welcome news but still left a few loose ends to be tied up.

"There is no doubt the market was starting to feel Wrightson's was going to go belly-up. That is not going to happen now."

Questions remain over the future of former Wrightson chairman Craig Norgate's company Rural Portfolio Investments' shareholding in Wrightson.

Lim said RPI would not be able to hang on to its shareholding without an injection of capital and that was unlikely to happen. That could open the potential for RPI to sell its stake to Agria. RPI currently owns 29.18 per cent of Wrightson.

But any more on that front would trigger a takeover situation as it would potentially push Agria's stake over 19.9 per cent.

AGRIA WHO?
* Beijing-based agricultural provider involved in research and development and production and sale of upstream agricultural products.
* New York Stock Exchange listed.
* Revenue of US$47 million for the nine months ended September 30.