Allied carves $220m off fair value of Hanover assets
Allied Farmers says the assets it acquired from the Hanover group of finance companies are now worth less than half they were when shareholders voted for the takeover last December.
As predicted in last week’s NBR print edition, Allied has been forced to mark down the value of the property assets and loans it acquired, on a fair value basis, given material events since settlement on December 18.
Instead of the $396 million figure quoted when Hanover investors and Allied shareholders approved the deal, the fair value of the assets under international reporting standards has slumped to just $175.5 million.
The announcement came at the same time that Allied reported a $15.7 million loss for the six months to December, somewhat worse than the year-earlier loss of $3.9 million.
Most of the “difficult” Hanover loans and assets have been transferred to a new subsidiary called Allied Farmers Investments.
Last week Allied chief executive Rob Alloway told NBR there were a number of things that Allied had uncovered as it went through the loan book and property assets acquired from Hanover.
“Anything we find inside any loan file irrespective of whether it’s inside Allied Nationwide Farmers or Allied Farmers Investments we will immediately bring in whatever authority is necessary to make sure that it’s investigated and any necessary actions are taken.”
Reasons for adjustments
“The Allied Farmers board, with guidance from external advisors, has undertaken a provisional fair value assessment on what we still consider to be a challenging group of assets,” Allied farmers chairman John Loughlin and managing director Rob Alloway said in a statement.
“Since settlement of the transaction, a number of positions have softened further than expected.”
“While we are confident a number of realisations can be achieved in the medium term, there is uncertainty attached to some positions.”
In the period leading up to settlement, the value of assets transferred was decreased by $20.71 million, reflecting asset realisations, loan advances, asset restructures, provisioning and bad debt write offs “approved by the board and management of Hanover Finance and United Finance.”
Under NZ IFRS that equated to a net $55.95 million decrease in the value of acquired assets, Allied said in its statement.
Subsequent to that December settlement a further reduction of $27.86 million was applied to property assets held for resale, $16.8 million to investments and $99.3 million to finance loans.
The dramatic reduction in the finance loan book was attributed to uncertainties around stage 1 of the Kawerau Falls Station project in Queenstown.
“This in turn has affected prospects for further development on Kawarau Falls stages 2 and 3 where the company has major exposures.
Extremely difficult
Mr Alloway said while “core business” performance had started showing signs of improvement in 2010, the first half year had been “extremely difficult” for the company.
Revenue in the first half was $53.7 million, down from $66.9 million a year earlier.
Finance subsidiary Allied Nationwide Finance contributed an unaudited net loss of $1.21 million for the period. (ANF was transferred the best of the Hanover loans upon settlement).
The underlying surplus was $33,000 but impaired asset expenses were $4.62 million.
Rural services subsidiary Allied Farmers Rural was again hit by cyclical dairy farm incomes, resulting in a net loss of $90,000 for the six month period compared with a $2.7 million profit the same period a year ago. Revenue in this area was down 32% on a year ago
Outlook
A good question, given the uncertainty around the Hanover property assets, although Mr Alloway did say that third quarter trading conditions for the rural division were exceeding expectations.
Allied shares closed down 2% to 10c yesterday. New Hanover investors were allocated nearly 2 million shares last December at an average of 20.69c each share.
Before yesterday’s adjustments to the value of the Hanover assets, broking house First NZ Capital had calculated that Hanover investors required an Allied share price of more than 27c to get their original $1 of principal back.
Meanwhile, Standard & Poor’s is maintaining a negative outlook on its BB- long-term credit rating for Allied Nationwide Finance.
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Comments and questions19
The whole Allied - Hanover deal smells...
Something still doesn't look right about why it took place at all...
If you take a look at the prospectus, the figure was the liability figure on the debentures and notes, after the releases involved in the transaction.
"The maximum value of the New Shares which can be alloted under the Prospectus is $396.2m, being the adjusted value of the holders' securities." (p. 14)
"The HFL secured depositors release 22 c for every dollar of principal ... each is [then] owed 72 c in each dollar of the original principal" (p. 13)
The securities were debt securities, and the adjusted value bears no relationship with the accounting value of the assets acquired as consideration for the issue of the new shares. The accounting value under fair value accounting was about half of the adjusted amount owed.
The adjusted value was just a nice number they thought of that was a few cents higher than the amount investors were told they would recover under the DRP.
If you read the prospectus you'd know it was a con, if you read the news at the time you'd get the impression it was the value of the assets Allied was getting, after doing due diligence on them.
RORT AFTER RORT AFTER RORT!!!!!!!! KEY AND ENGLISH WHERE ARE YOU?? TOO BUSY CHECKING YOUR CREDIT CARDS?? DO SOMETHING ABOUT THESE THIEVES NOW ; TODAY!!
David Hillary wrote: "If you read the prospectus you'd know it was a con, if you read the news at the time you'd get the impression it was the value of the assets Allied was getting, after doing due diligence on them."
Maybe David but the Allied Chairman and others had a duty of care if not a contractual obligation to correct any media representations or distortions, and to make sure vulnerable prospective shareholders in Allied understood the value and financial realities before people were encouraged (lobbied) to vote.
The proposition was apparently deliberately deceptive by Allied leaders (a “con”) all of whom apparently knew they were selling shareholders and Hanover depositors a pup.
Wouldn't mind betting 'fair value' under the applicable accounnting standards is actually a lot less than what those loans are worth BUT it is absolutely unbelievable that this much money was literally given away by the original Hanover people.
There must have been a lot of fun and good times, plenty of new luxury cars and boats, overseas holidays for all travelling first class and staying in the penthouse suite had by the lucky types in the clic with Eric and Mark.
All while the poor old investors were being sucked in big time.
There really has to be a royal commission into how this was allowed to happen not just to Hanover but to all the other finance companies. Something smells real real bad here as pg said
Looking at how this has all turned out isn't it a case of Mr Loughlin and Mr Alloway being outsmarted by the two Hanover principals? It seems they are on the hook with much misery ahead and plenty of explaining to do whilst Mark and Eric continue quaffing the champagne ....
What a surprise
This is absolutely no surprise and expect only the beginning. The great Allied with no real finance co. experience have been duped ......... again...... aka Spiers and Prime ...... well done... next of the ranks Strategic. However did fix (for a while) your whoeful equity position!!
John Key you will not attract the international finance comunity while we are the"Wild west" of fringe banking.For goodness sake wake up and actually DO something!If English and co can't cope get someone who can.
This is what you get when you add two turds together.
One big turd!
Ok - so the Chairman and CEO signed off on a deal 2 months ago to buy $396m as net assets from Hanover.
Now they say they are worth $220m less than that. Everyone knows nothing has actually changed in the last two months. So they we are actually worth only $175m when they bought them.
Surely this is gross negligence at th very extreme end of the spectrum. But obviously they don't think so. Guess they consider this normal? Otherwise wouldn't they be submitting their resignations at the same time????
This is nothing to gloat over, but the Allied deal is going to end very badly for many Handover investors.
To get their money back (no interest at all) Allied shares need to trade at $0.27, currently they are trading at $0.088 and falling. If the mortgages can not be realised due to further stress in the construction industry, and one has to remember that Commercial Property drops after residential property in the usual cycle of wax and wane in values. so the chance of further DOWNSIDE disapointments is great.
When the Allied shares are available at $0.05 or less some savy investors are going to make a lot of money. A 50% return in less than 6 months is very possible, perhaps more.
At $0.05 it would be worth a punt, at $0.03 its a no brainer.
Don't be surprised if it is Mark or Eric on the buy side.
With Allied getting a BB_ THEY ARE OUT TO LUNCH ON THE GOVERNMENT GUARENTEE.
So the sad elderly investors have been duped again.
The CEO of Allied has effectivly duped elderly investors by not doing thorough due dilligence. He should be sued as should Eric Watson and Mark Hotchkin for deliberatly misleading investors.
Will someone with a vested interest please take these coyboys on ?
In my opinion the current market price of Allied shares at nearly 9 cents considerably overstates the real value of the company especially given its high;ly questionable "leadership" if you can call it that.
Maybe at 2 cents they might be fair value. Get out now while you still can and sue for your losses.
Surprise surprise, when will the SFO and market regulators take action against these two - Watson & Hotchkin.
It is the debenture holders money financing Watsons prosties and and Hotchkins $30m houses.
They may as well just given them an open check, it was used as their own bank - to fund side projects where the profits were loaded into and distributed to these two.
So when will Allied be calling in the Receiver? If a Minister resigns over a two bob credit card bill what fait awaits the Minister who is presiding over this grossly criminal act?
If this were the United States, O'Loughlin and Alloway would be heading off to be fitted for their stripey pyjamas. In NZ they will probably just cash in their mutli-million dollar self-penned exit packages when Allied inevitably dwindles to nothing.
My bet is that the ultimate realised value of the Hanover 'assets' is less than $100m.
Allied's pre Hanover shareholders have been badly let down, by a Board with an established reputation at failure. You should have bailed when the whole company started wobbling. Allied will continue to write-down assets, post massive losses and burn cash. In a prior blog i did predict the massive write down, now look at the cash burn.
Attention shareholders: If you want to save what's left of your company you must immediately do the following ;
1. Replace the entire Board at an SGM, they have no credibility and will ultimately sink the company, if not replaced.
2. Appoint a QC to review the Hanover transaction
3. Commence legal action against the Allied Board who proposed the transaction, and Hanover's shareholders including the dynamic duo (Watson and Hotchin) for misrepresenting Hanovers position,
4. Get out of lending, and stick to your core business. The grief only started when you started dabbling in pretending to be a finance company.
We warned: This is only the start of the grief.
I completly agree with the above comment.
Unfortunatly elderly investors will be reluctant to rock the boat to such an extent so they should simply get out now. The adjusted net tangible asset value is approx 8 cents per share, which is almost exactly where the shares are trading now.
Anyone who thinks there won't be further massive write-downs seriously dimishing NTA is simply an Ostrich sticking their head in the sand. They need to get good advice, get a stockbroker and get out before the rest of their money is lost.
They can't say Reality Check didn't warn them.
City slickers face farmers - and their over ambitiious board - in hugely complex negotations. Credible but inadequate write downs. False hope - again - for the hapless investors. City slickers succesfully offload massive liabilities and crack open the bubbly. Over ambitious directors left to pick up the pieces. Reputations severely damaged without the consolations of Watsonian wealth.
Does this sort of thing happen with such monotonous regularity anywhere other than NZ?
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