LIC $10m loan extension queried

Livestock Improvement Corporation says it is "comfortable" with the time extension given to PGG Wrightson's controlling shareholder, Agria Singapore, to repay a $10 million loan.

But some farmer shareholders of LIC, a Hamilton-based dairy genetics co-operative company, expressed concerns about the deal at LIC's annual meeting today in Hamilton.

Shareholder Richard Myers questioned the rationale for the LIC loan.

"I still fail to see the reason for making the loan. I see it as a $10 million loan to a Chinese company to facilitate their investment in PGG Wrightson. How does it fit into the strategy of LIC?

"It's a loan, it seems, with some hope to get a piece of some opportunity that may arise in future to get a part in a seed company."

LIC chief executive Mark Dewdney told the meeting that LIC originally provided a $10m loan to Agria Singapore for 18 months, which fell due for repayment on October 31. The loan was made to support Agria to take control of PGG Wrightson.

ANZ loaned Agria $53m, of which $28m had been repaid, Dewdney said.

Before the loan fell due, Agria asked ANZ and LIC to extend the loans.

"ANZ were prepared to do this for a further period to April 2014 and, as the subordinated lender, LIC were then required to do the same," Dewdney said.

"Our position is that we are comfortable to stay there. We are comfortable to maintain our relationship with Agria. We have a good relationship with PGG Wrightson."

Benefits of providing the loan included LIC getting a position on the Agria board and an inside view of what was happening at PGG Wrightson, Dewdney said.

"Technically Agria haven't defaulted on the loan. They have paid all interest as it has fallen due."

Dewdney said LIC supported Agria's takeover move, because it believed there was potential to improve grass species for New Zealand.

"We wanted to influence the future direction of PGW's grass research and development for the benefit of New Zealand farmers.

"Our intention was to put ourselves in a position to consider investing in a separate AgriTech business, if such a standalone business was established by PGW."

Farmer shareholder Graeme Edwards said shareholders might be entitled to a "degree of nervousness" with their co-operative venturing "outside core business". He questioned the wisdom of LIC essentially following the leader, with "ANZ driving the loan extension".

He asked if LIC would have extended the loan if it had not been the subordinate lender.

Dewdney said LIC had not had a choice on that matter, as LIC had been the subordinate lender from the beginning.

"When ANZ extended, we needed to extend as well, as ANZ are driving the terms of the loan." He said that overall, LIC's involvement had met its expectations.

Agria, ANZ and LIC have agreed there will be a $10m, part-repayment of the total loan by mid-December, with LIC to receive at least half of that. The interest rate has been increased on the balance of the loan. Agria is able to repay the loan balance at any time before 2014.

"LIC's security for the loan is PGW shares, and they would have to trade at under 10 cents a share to fall below the value of our loan - this compares to the current share price around 35 cents - we are comfortable with this," Dewdney said.

"Maintaining our loan to Agria also allows us the potential to participate if there is a split-out of the AgriTech business by PGW. We would consider this if and when it became a real option."

Agria is a New York Stock Exchange-listed, Cayman Islands-registered, Singapore-controlled company with offices in China.

Waikato Times