Allied Farmers, audacious minnow, wins over Hanover investors

Thursday 17th December 2009

Allied Farmers Ltd, a finance and rural services company with a market value of $7.5 million, has convinced investors in failed Hanover Finance to accept $400 million of shares in exchange for their financial assets.

The proposal won the required 75% support at an at-times bitter meeting of Hanover and United Finance investors in Auckland today. Stung with the news that Hanover’s moratorium wouldn’t recoup their funds, the investors chose to bet on shares in an enlarged Allied rather than take their chances with likely receivership.

Shares of Allied are on trading halt for the vote, having sunk to a record low 19 cents a share this week, a fraction of their $1.50 price in January 2008. Shares on issue would soar to more than 1 billion from 37.7 million currently, with the new investors owning 97% of the enlarged company.

“They pulled it off. I only hope the share price doesn’t collapse like I first feared – that would leave a lot of people upset,” said Murray Weatherston, financial planner at Financial Focus. A decline in the stock is likely “when the eventual tsunami of shares that’s expected come on the market.”

Allied’s existing shareholders have already backed the deal, which will water their holding down to less than 5%. Last month, Hanover posted a $102 million loss and confirmed the best-case scenario would offer debenture holders 70 cents in the dollar.

The 13,800 Hanover and 2,600 United investors were hoping for full repayment when they approved the moratorium last year.

Hanover and United have $296.8 million of debentures and term deposits and total securities of $317 million. A year ago, the same assets were valued at $516.6 million. Under the deal, Allied will leave $10 million in Hanover for mopping up purposes.

“In the end they had no faith in the moratorium of Hanover or receivership,” said Stephen Wright, private client adviser at ASB Securities. “Some will figure they can do better if they can hold in there, others will be looking at immediately selling,” Wright said.

After the announcement, the Securities Commission ruled out any market manipulation or insider trading during “abnormally high” trading volumes in Allied Farmers stock last week. The NZX referred the matter, which it called “unusual” when Allied’s share price plummeted to 20 cents from 28 cents on Dec. 10.

Allied chief executive John Loughlin has touted his company’s experience recouping value out of its own loan books, and is confident on being able to squeeze more out of Hanover’s loans than the finance company’s directors could under the restrictions of a moratorium.

“We’ve had a great deal of success and in most cases, we’ve collected in full” on impaired property loans, Loughlin told brokers in the run-up to today’s vote.

Hanover’s high-profile founders Mark Hotchin and Eric Watson will exit under the deal. Allied plans to follow a strategy employed by Pyne Gould Corp. of creating a new asset management arm to manage the bulk of the mortgages which have gone bad.

That leaves about $50 million of loans “that will be clean and have been reviewed by the trustee and independent directors” and are to be transferred directly into Allied Nationwide Finance, according to Loughlin.

Businesswire.co.nz

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