Allied deal good news for Hanover

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New deal for Hanover investors

JOHN SELKIRK/Dominion Post

OFFERING LIQUIDITY: Allied Farmers chairman John Loughlin says Hanover's assets have undergone rigorous scrutiny.

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Hanover Finance investors could see all their capital returned "plus some" under a debt-for-equity deal agreed between the cash-strapped lender and listed rural services and finance company Allied Farmers.

Allied Farmers revealed yesterday it has launched a $400 million bid to buy the property and loan assets of Hanover and subsidiary United Finance as part of a new strategy aimed at greatly boosting its size and acquisition ability.

Under the deal Hanover depositors will be able to swap their debentures for ordinary shares at a price determined by the volume weighted average price of Allied stock over the five days leading up to their vote next month.

Allied Farmers' chairman John Loughlin said the price would be the equivalent of about 78 cents in the dollar based on the current market value of the company's shares.

The estimate, he said, reflected the value of Hanover's assets, which had undergone rigorous scrutiny by external advisers, and the financial contributions pledged by co-founders Eric Watson and Mark Hotchin as part of the company's debt restructuring plan.

While the amount Allied was able to collect on the loans going forward was the "great unknown", Kapiti Coast sharebroker Chris Lee said a good result could significantly improve Allied's share price returning more to investors than first thought.

"If Allied Farmers prove they've made a clever assessment of how much they can collect and do collect it then their share price, you would expect, would one day be quite a bit more. If that's the case the people who've been given the shares may be one day able to sell out and get back most, even all their money back plus some. Those who hang onto their shares might even see some dividends come from this."

In the short term, sharebrokers said it was most likely that the price of Allied stock would fall given the sheer volume of people likely to sell their shares, a point acknowledged by Mr Loughlin.

"We certainly anticipate a number of shareholders selling. They have no liquidity in their current position and this offers them liquidity," he said.

Only last week Hanover told its 17,000 investors that they be unlikely to get their full capital repaid. Secured depositors would likely get 70c in the dollar, while capital noteholders and unsecured depositors were unlikely to see anything at all.

ING senior investment manager Craig Brown said it was the latter group that was advantaged by the proposed deal and their decision could even dictate the outcome.

"It gives the old people a chance to recoup some much needed cash and live out their lives. This might be an opportunity for a lot of them to say: `Phew, a get out of jail card' if you will."

Allied plans to issue 900 million new shares, which the company says will allow it to grow its current capital base of $13.2m to around the $185m needed to qualify for the NZX top 50. Good performing loans – estimated to be about 20 per cent of Hanover's book – will be transferred to the company's finance business Allied Nationwide Finance.

"That will enable Allied Nationwide Finance to be extremely well capitalised and capable of having a very good credit rating," said Mr Loughlin. "It'll probably have the best equity ratio of any finance company in the sector".

The more "challenging" assets, meanwhile, would be transferred to a newly established subsidiary called Allied Farmers Investment headed up by Allied's current managing director Rob Alloway.

- © Fairfax NZ News