Allied Farmers signs deal with Hanover

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John Selkirk

DEAL: Allied Farmers chairman of directors John Loughlin said Hanover was the ideal choice given it was locked into a moratorium and liquidity was an obvious ongoing concern.

New deal for Hanover investors

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Investors in cash-strapped lender Hanover Finance will be offered a shares-for-debentures sweetener to rubber stamp a $400 million deal with listed rural services and finance company Allied Farmers.

Allied Farmers this morning revealed it has launched a bid to buy the property and loan assets of Hanover and subsidiary United Finance as part of a new direction strategy which will see the company bulk up its size and acquisition ability.

The announcement came only 24-hours after Hanover reported a $102m loss for the 12 months ended June 2009 and a week after informing investors they would unlikely see the full value of their investments repaid.

Allied Farmers chairman of directors John Loughlin said Hanover was the ideal choice given it was locked into a moratorium and liquidity was an obvious ongoing concern.

Under the deal, Hanover secured depositors will be able to swap their debentures for Allied Farmers shares, with the ratio to be determined by the volume weighted average price over the five trading days leading up to their vote next month.

"It's about 78 cents, so it's significant. That's 78 cents in the dollar for their shares based on the market value of Allied shares,'' said Mr Loughlin.

"That reflects both the value of the assets there and the contribution of the support package provided by Hotchin and Watson, which is carried forward in the transaction.''

Mr Loughlin refuted claims that Allied Farmers was taking advantage of Hanover investors.

"They are locked into a moratorium position and, in my view, that moratorium is structured in such a way it will not make it easy for investors to collect out the best value  there's the best intentions there, but I'm not sure the structure would have led to that outcome.

"They have no liquidity in their position and this offers them liquidity. I also think there are significant synergy benefits in this transaction. The good components of the loan book can go into Allied Nationwide Finance in exchange for equity in the parent company.''

Hanover's auditors KPMG yesterday ended months of waiting for the struggling company's near 17,000 secured and unsecured investors by laying bare Hanover's accounts, showing a $102m loss.

The company, which has been operating under the terms of an investor-backed moratorium since December, experienced an operating loss of $283m compared to a $10m profit for the previous year. Its latest estimate had been that investors might get 70 cents in the dollar of their funds back, while United Finance depositors would see around 90 cents.

No estimate was given for unsecured creditors and bond holders at the time and today Mr Loughlin said should investors back the deal, their fate would be decided by Hanover.

The intention is that a large proportion of the performing assets - viewed to be around 20 per cent of Hanover's portfolio - will be transferred to Allied Nationwide Finance, increasing the size of the balance sheet and improving capital adequacy.

A new subsidiary of Allied Farmers will be established for holding and managing difficult assets.

In the interim this subsidiary will be lead by Allied Farmers managing director Rob Alloway until a permanent appointment is made.

Notice of a special meeting of Allied Farmers shareholders will be sent next week scheduled for early December and prior to the meeting of Hanover and United investors which is intended to be held in mid-December.

- © Fairfax NZ News