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Farmer holds PGG Wrightson book - Source: ONE News -
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PGG Wrightson's decision to take on a foreign cornerstone shareholder will improve trading opportunities but it may be more a case of dealing with debt than strategy, says farming commentator Tim Fulton.
Chinese rural solutions firm Agria will take a 13% ($36 million) new equity stake in the New Zealand company, conditional on PGG Wrightson meeting a $200 million debt repayment in March 2010.
In its announcement to the sharemarket on Friday, PGG Wrightson also said that Agria may take on a bigger share in the future.
Fulton says having a larger partner like Agria will give PGG Wrightson trading advantages, and Agria's focus on plant and livestock genetics should complement PGG Wrightson and provide growth opportunities.
However, he says the sale is not an ideal scenario even though the company says it is part of its overall strategy.
"I can't imagine that this was where the company wanted to head a year ago, perhaps even six months ago. I think it's a real marker of that debt situation, the $200 million they've got to repay by March," says Fulton.
Meanwhile, Craigs Investment Partners market analyst Baden Carter says the sale will likely be seen as a positive given the lack of capital available internally.
"Agria gives PGG Wrightson some access to international markets for their IP perhaps and gives them access to capital," says Carter.
The shares were priced to Agria at a premium of 88 cents and the company is expected to announce further capital raising plans in November, of which Agria may take part.
Fulton says other New Zealand rural services providers and co-operatives will get some positive traction from the sale due to general farmer conservatism on ventures.
