Allied Farmers signals willingness to dip toe back into finance business
Allied Farmers [NZX: ALF], whose former finance arm Allied Nationwide Finance failed in 2010 owing $130 million to debenture holders, has signalled willingness to return to financing, albeit in a small way, by helping fund livestock transactions.
The Hawera-based company raised $210,00 in a private placement and plans to raise up to $1 million more from existing shareholders in a share purchase plan partly underwritten by Fraters Group, a private company associated with former Citigroup director Mark Benseman.
Funds raised will partly be used to repay some of $5.5 million of secured debt the company owed as at the end of 2014, which is down from $62 million in 2010. Allied Farmers' remaining major asset is a 57 percent stake in the profitable NZ Farmers Livestock, which operates sales yards and runs the online MyLiveStock.co.nz website.
"By retiring secured debt, Allied will be in a stronger position to support the expansion of NZFL's business into new regions," Allied said. "There may be some opportunity for NZFL to expand its assistance of financing for clients' livestock transactions. this would provide additional interest income as well as being an enabler to increase throughput through the saleyards."
"Rest assured, we are not proposing to get back into the general finance company business, rather this would be short‐term livestock financing for clients where we have a good insight into their business," Allied Farmers said. "If sufficient funds are generated from the capital raising it is intended that some of these funds will be reinvested in NZFL to help develop these growth opportunities."
The Reserve Bank yesterday cited persistently low milk prices as a risk to the country's financial stability, with about a quarter of dairy farms operating in negative cash flow this season. While dairy debt had largely been stable over the past year, deputy governor Grant Spencer told politicians there had been an increase in short-term borrowing to cover working capital needs.
The company is offering shareholders the right to buy up to $15,000 of shares apiece at 5 cents each, a 3.8 percent discount to their last trading price. The stock has dropped 27 percent this year.
Allied's other business is a holding company that is selling down the $394 million of loans and property assets acquired from Hanover and United Finance in 2009, only to write off the majority of their value.
The company avoiding liquidation in 2013 by selling bonds, and sold down its stake in NZFL to 57 percent last year to help repay $2 million owed to Crown Asset Management, which was set up in 2012 to acquire the assets of five failed finance companies repaid by the government under its retail deposit guarantee scheme, including Allied Nationwide Finance.
"The board and management have worked hard to keep Allied trading since the global financial crisis and the impact that has had on the business," chairman Garry Bluett said. "Unlike many companies exposed to the rural and finance sectors during that period, Allied has survived and has been able to maintain at least some value for shareholders."
The company said raising funds through the share purchase plan was preferable to further selling down its stake in NZFL.