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Shares in Allied Farmers have taken a tumble after the company yesterday announced its finance arm's first credit rating and shareholders digested a huge fall in asset value from the Hanover and United Future purchase.

Allied said yesterday the new fair value of the assets had more than halved in value, falling from $396.2 million when they were bought in December to $175.5 million.

Shares were initially unmoved after the results at 10c, but by midday today had slipped 15 per cent to a new year low of 8.5c.

The majority of the writedown was done after the purchase under the international financial reporting standards.

Some $99.3 million stemmed from finance loans, largely from uncertainties associated with the much-delayed Kawarau Falls hotel development near Queenstown.

Allied's bottom-line result was a loss of $11.8 million for the December half year, compared with $4.76 million the year before. That included a $3.84 million impairment of goodwill from finance arm Allied Nationwide.

Godfrey Boyce, head of financial services KPMG, said the writedowns were "a significant step down'' and bigger than he anticipated.

"You'd have to say it's at the top end of expectations, but having said that, we've seen significant writedowns in other property financiers including Strategic Finance so it's all in keeping with the general malaise that's affected the property financiers generally.''

Strategic Finance said this week that its after-tax trading loss for the December half was $99.8 million, higher than the $84 million loss signalled in January.

Mr Boyce said Allied's result reflected how first mortgage holders were squeezing out mezzanine and second mortgage lenders.

The result really came down to company strategy.

"If it saw an ability to hold these assets for a period until we come out of the cycle .th.th. then they may say that's all an accepted part of the strategy. The value's not there now but we're going to hold it into the future.''

The less successful loans would be parked in a land bank-like vehicle, waiting for values to return, he said.

Meanwhile, Allied subsidiary Allied Nationwide Finance has been given a BB-minus long-term credit rating with a negative outlook from Standard and Poors, one notch below the rating needed to be in the Government's extended deposit guarantee scheme when it rolls over in October.

Allied Nationwide and Allied Farmers chairman John Loughlin said the parent company planned to transfer more capital into Allied Nationwide to raise the rating.

"This is our first credit rating and it has been undertaken in challenging times. We have a strong incentive to continue to improve our business and strengthen Allied Nationwide's balance sheet in order to demonstrate that we are worthy of the credit rating that we feel we deserve and can achieve.''

He said only loans of a suitable quality appropriate would be offered to Allied Nationwide in exchange for additional capital. 

"Allied Farmers has had control of these assets for a relatively short time and want to make sure that quality of all assets in the book of Allied Nationwide can be realised to give investors confidence in the quality of the underlying assets and future earnings and their security.''

S&P had also assigned a B short-term credit rating.

It said the ratings reflected the finance company's weak stand-alone capital although improvement was anticipated this year; the recent deterioration of asset quality and that it faced a material amount of debenture refinancing was expected between March and October. 

However, S&P also noted the recapitalisation of Allied Nationwide's parent and that its business profile was more diverse than other peers.

- © Fairfax NZ News