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John Loughlin - Source: ONE News -
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Allied Farmers says it would work hard with Hanover Finance's loan book to get some good results, despite 80% of the assets being described as non-performers.
The company's chairman John Loughlin made the comments to NZI Business a day after the company announced it had agreed to a $400-million deal to buy Hanover and United Finance's finance assets.
Under the deal Allied would issue 900 million new shares and put around 95% of its ownership in the hands of the more than 16,000 Hanover and United Finance investors, if Allied shareholders and Hanover/United investors vote the deal through.
Loughlin says the plan is ambitious, but he believes Allied can make progress minus Hanover and United Finance's current restrictions.
"Hanover's been very constrained by the rules of the (five-year) moratorium, several of those loans are distressed because there are first mortgage lenders charging very high penalty rates on those loans," he says.
"With a little bit of flexibility and a little bit of refinancing...we can stop the rate at which those loans are bleeding."
Loughlin says assets such as Queenstown developments Five Mile and Jacks Point are quality assets, but are currently "very badly financed".
Fairfax Media business commentator Jenni McManus says the deal will "add a little bit of song" to the market, but the decision hangs with Hanover and United Finance's 16,000 secured depositors.
The company recently said it would not be able to repay them in full, but expects to repay them 70 cents in every dollar.
Under the Allied deal, however, Hanover and United investors could get an average 78 cents for every dollar owed if they take up the offer.
"They're going to have to decide whether they want to forgo their future capital stream from Hanover, as it might be, for shares in Allied Farmers. And they're going to have to make a call on what returns they can expect to get from those shares," says McManus.
She says the decision will be a "no-brainer' for Hanover's approximately 1,500 unsecured investors and deposit holders who are not likely to get anything if they stay with Hanover.
Loughlin says that if the deal goes ahead and Hanover and United investors then decide to put their Allied shares up for sale, it will push Allied's share price down, But, in doing so, it will also create an opportunity for new buyers to gain entry into the company.
"We'd be disappointed for Hanover investors if that was the choice they took, but it's a choice that's not available to them at the moment. They're locked into a moratorium, they've seen a whole lot of value erode, there is no way out. This (deal) gives them a new choice," he says.
Loughlin says if the deal bumps the company into the NZX50 it
would introduce interest in Allied stock that is currently not
there at the moment.
