Allied Farmers looks to repay Westpac and find a new bank

Allied Farmers hopes to fully repay Westpac the NZ$19 million it owes in term debt by the end of the calendar year and/or switch to a new bank, with such a move potentially also including transactional banking services.

(Update adds link to story on Allied Nationwide Finance and relationship with Resimac).

Speaking to interest.co.nz yesterday after the rural services and finance company revealed plans to raise up to NZ$19.3 million through a capital raising, Allied Farmers managing director Rob Alloway said Westpac had been “on board” with the capital raising plans for some time.

The deadline on Allied’s NZ$19 million worth of loan facilities with Westpac, which was due to expire on July 1, was recently extended until September 24 and then through until March 31 next year. Alloway said Allied was aiming to have Westpac repaid in the first half of the current financial year, which would be by December 31.

“At the moment it would appear that we’re on track for that,” Alloway said. “If you do the sums and things on this capital raising with a NZ$9 million underwrite, that takes a fairly significant chunk out of this whether or not all or part of the proceeds are applied to Westpac.”

The capital raising is being underwritten by McDouall Stuart Group, with sub-underwriting from institutional investors, to the tune of NZ$9 million. McDouall Stuart's managing director Andrew McDouall is an Allied Farmers director. The capital raising consists of two parts, - an institutional placement raising NZ$2.25 million at 2.5 cents per new share, and a rights issue to current Allied Farmers shareholders entitling them to 1 new share at 2.5 cents for every 3 shares held.

Alloway said Allied had been talking to Westpac about various ways it could restructure its debt and have the bank fully repaid as well. Money to repay Westpac would be sourced through asset sales, such as the recent sale of stage two of Queenstown’s Five Mile, and Allied’s ability, as a listed company, to tap the sharemarket for cash through the capital raising plans.

The unconditional Five Mile sale, to an as yet un-named party, is due to settle in mid-November with the sale price north of NZ$23.2 million. That said, prior charge holder Uno Finance will skim off NZ$9.3 million of the sales proceeds.

“Ultimately we’ll either be re-banked by someone else or Westpac will be fully repaid,” said Alloway, noting Allied had been talking to other banks for some time.

The bulk of the company’s transactional banking, including through its rural services operations, was also with Westpac.

“At the moment we haven’t speculated on what we’d do with that in the future, but maybe that could be moved.”

Allied acquired the Hanover group's finance interests through a shares for debentures swap valued at NZ$396.2 million last December, but has since slashed the carrying value of these assets by 69% to just NZ $124 million. The deal saw some 16,400 Hanover Group investors issued 1.9 billion Allied shares valued at 20.7 cents each. Alloway said as of June 30, Allied had about 21,400 shareholders suggesting the bulk of those Hanover investors were still with Allied. Allied’s share price was just 5.5 cents before the capital raising plans were announced and slumped 22% yesterday to 4.2c after the announcement.

Alloway's message to Hanover investors was to urge them to take up their rights in the capital raising.

“We think these [new shares] are at a deep discount. You wouldn’t expect them (ex-Hanover investors) to want to be diluted and they’d be urged to participate if they can afford it,” Alloway added.

Although there were some signs of recovery in the rural sector with the company looking to invest in Allied Farmers Rural's merchandising and livestock operations, Allied Nationwide Finance remained tough with a “particularly challenging” debenture reinvestment rate. Allied Nationwide is covered by the Crown retail deposit guarantee scheme which expires on October 12, but not the extended Crown retail deposit guarantee scheme that kicks in from October.

And whilst Allied was hopeful of selling further assets from the Hanover book, commercial property market conditions remained weak. So the former Hanover debenture holders shouldn’t expect to see a soaring Allied share price or dividends any time soon.

“If you work out on the basis of the number of shares to get a 1 or 2c dividend per annum per share, you’ve got to have a pretty substantial earnings line to get a dividend out of this business,” Alloway said.

“Whilst we’re working on getting our operational earnings up there, we’re still a wee way away from getting dividends out.”

The rights to the new shares are renounceable meaning shareholders who don't wish to subscribe for more can sell their rights, which may have a value, through the NZX rights trading facility. And, if  shareholders want to buy more than their entitlement, they can apply for additional new shares.

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