Some eight months after Allied Farmers trumpeted securing a NZ$7 million investment from Resimac in its finance company subsidiary, the Australian non-bank lender is yet to cough up any cash and Allied Farmers boss Rob Alloway says the two companies are still courting.
Allied Farmers unveiled a deal on October 1 last year saying it had secured a commitment of up to NZ$7 million in equity funding in Allied Nationwide Finance (ANF) from a large professional investor. It then named Resimac, an Australian non-bank lender, as the investor on November 24. Allied Farmers said then the investment, and an alliance with the Australian firm, was the first step towards reaching an objective of turning ANF into the best capitalised finance company in New Zealand.
However, Allied Farmers managing director Rob Alloway told interest.co.nz Resimac was still to invest any money in ANF, whose credit rating was this month downgraded two notches by Standard & Poor’s to B from BB minus with its outlook put on CreditWatch with negative implications because of a deterioration in its cash on hand.
Asked when Resimac may stump up some cash, Alloway said he wasn’t going to try and guess the way another investor might think and talked up the potential long-term benefits of the relationship.
“I’m comfortable with the position that has been struck there,” Alloway said.
“I guess we’re forming a long-term relationship with Resimac rather than a short-term one and at the moment in many respects we’re still courting. They’ve got a lot of strengths in their business in a number of different areas we can both learn and leverage from if we can form a relationship with them.”
A recent ANF prospectus sets out how Resimac might be issued ANF share warrants. The warrants, once issued, entitle Resimac – at its discretion but without obligation over a five year period – to invest up to NZ$7 million acquiring ANF shares at market value at the exercise date of the warrants. Resimac will also be able to appoint up to three nominee directors to ANF’s board. If the rights aren’t exercised then they lapse. As of March 31, the prospectus notes, ANF was still reviewing the terms of issue of the warrants and other contractual arrangements with Resimac.
Resimac spokesman Dugald Morrison, asked when the Australian firm might take up its option to invest in ANF said because Allied Farmers was a listed company, it should answer the question. Morrison did, however, point to the prospectus comments.
Alloway, meanwhile, also said: “I think the issue of those warrants was really just a seed to build a much stronger relationship with Resimac in the future.”
As for S&P’s downgrade of ANF, Alloway noted additional capital in ANF or Allied Farmers was one of the key steps required to improve the credit rating. With a credit rating below the minimum BB required for acceptance into the extended Crown retail deposit guarantee scheme starting October 12, Alloway said the focus for ANF over the past few months had been on "configuring" the business to operate outside the guarantee extension. ANF is covered by the existing Crown retail deposit guarantee scheme, which ends in October.
Separately, he was unable to put a timeframe on when any performing loans from the Hanover and United Finance books, which Allied Farmers acquired last December, might be transferred to ANF. These loans had been “quarantined” for the past six months with many booking “pretty severe” impairments.
“The board of Allied Farmers will consider the transfer of good quality loans into Allied Nationwide Finance at some point but I’m not at liberty to say when that will be,” Alloway said.
Allied Farmers has previously said it would look to do this.
Meanwhile, Alloway said Allied Farmers was “quite excited” about the prospects for its subsidiary Allied Farmers Rural, which provides livestock, merchandise and real estate services to farmers. He was buoyed by Fonterra’s announcement last month that its payout for the 2010-11 year could be well over NZ$8 per kilogram of milk solids if international dairy prices and foreign exchange rates held at current levels.
“An $8 payout from Fonterra is material in terms of Allied Farmers Rural,” Alloway said. “Payout is a very, very heavy driver. It drives cattle prices, it drives the amount of merchandise that’s sold, it’s a big thing and we’re pretty excited about that.”
On top of this Allied Farmers, which has slashed the value of the Hanover finance interests it acquired by 69% to just NZ$124 million, expected to see returns on that investment soon with a number of court cases involving delinquent borrowers coming to a head.
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