Taxpayer-funded Allied Farmers in trouble

Government support of troubled rural services company Allied Farmers will be put to the test after the company revealed it must repay a $500,000 loan within 15 days.

Allied Farmers says it has “been advised” that a lender has served a statutory demand for repayment of this loan, in spite of lengthy work out negotiations after Allied missed a November 2012 deadline.

In a statement to the NZX Allied says it is “very surprised" by the action of the lender, given the company has been working co-operatively on a sensible timeline for repayment, and given that it has a first ranking secured lender.

That first ranking secured lender is Crown Asset Management, an entity set up to handle assets from failed finance companies backed by a hastily enacted retail deposit guarantee scheme, including former Allied subsidiary Allied Nationwide Finance.

Allied is struggling to get back on its feet after a disasterous foray into finance culmnining in a deal in late 2009 to take over the assets of two Hanover Group finance companies in a debt for equity swap.

Just before Christmas Allied said CAM had taken ownership of $13.5 million worth of property assets at Jacks Point, Queenstown, as part of a set off of debt owed to it.

And further to that deal CAM agreed to provide a new funding facility to Allied and signaled it will consider “further, more significant, funding support” at the time other assets are sold.

This arrangement will now be tested with Allied having to repay $540,000 (including interest) on this other loan.

Allied says it will be unable to meet that obligation without the support of its secured lender, [CAM] “who at this stage has not indicated its position”.

Allied says it has been assessing the position of a number of parties to determine the value of the underlying asset for the purpose of Allied’s half year financial statements.

“Whilst there is some way to go in this process and the Board has insufficient information with which to form a decision, it is likely that partly as a result of this potential action by the Lender the position of a number of parties may change, and the Underlying Asset may need to be substantially if not completely written down. The carrying value of the Underlying Asset is $3.75 million.”

At year end, Allied’s auditor PwC gave a "disclaimer of opinion" on the company's annual report, saying there was insufficient evidence the group will generate enough cash from asset sales, reach agreement with some of its creditors, retain the support of its secured lender and find new funding.

dbridgeman@nbr.co.nz