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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 m

Duncan Bridgeman
Tue, 02 Mar 2010

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.
 

Duncan Bridgeman
Tue, 02 Mar 2010
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Allied carves $220m off fair value of Hanover assets
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