Olam letter a sign of a cash crunch at NZFSU

Signs of a cash shortage at takeover target NZ Farming Systems Uruguay emerged late yesterday after the release of a letter to the stock exchange from bidder Olam International.

The letter, dated September 1 and addressed to Farming Systems chairman John Parker, assured the company of Olam's best efforts to secure a "stand-by credit facility".

"We expect that such a facility should be forthcoming, once Olam has a shareholding of more than 50 per cent," it said. "This would only be an interim measure before an appropriate long-term funding solution is implemented."

The letter did not say why the short-term cash was needed, but in a supporting statement to the NZX Olam said it had been asked to allow the letter's release to one of Farming Systems' lending banks in Uruguay. It noted the company was expecting to settle a conditional farm sale deal in August, but was subject to the bank releasing the property from its security.

In addition, it said: "Olam has been asked by NZFSU to confirm to the lending bank that it is aware of the Don Pepe sale, and has no objection to completion of the sale. Olam has provided this confirmation."

A spokesman for Farming Systems conceded cashflow tended to be low at this stage of the season, but said there was no urgent crisis. Olam's offer "was an offer of short-term funding for specific projects", he said.

"It's an option that's there. It's not needed for operational purposes."

The Farming Systems board has recommended shareholders sell at least some of their holdings into Olam's 70c a share bid, "in order to ensure that Olam secures the minimum 50.1 per cent required".

Acceptances so far give Olam a 40.3 per cent stake and the company yesterday said its bid would not be extended beyond the closing date of September 24, leaving only two weeks to gather a further 10 per cent.

An independent report commissioned for the takeover said Farming Systems was worth between 65c and 79c a share, valuing the company at $159m-$193m.

Singaporean commodity trading giant Olam picked up its initial 18.4 per cent holding for 41c a share between last September and May this year.

Since listing in 2007 Farming Systems has underperformed its forecasts, with much of the blame placed on an ill-fated spend-up on land in Uruguay that left no money for developing dairy operations on the farms.

The company now says it needs to raise a further US$60m to complete its investment programme.

- © Fairfax NZ News