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Wrightson ‘skates on thin ice’ with Agria deal

Wrightson ‘skates on thin ice’ with Agria deal, may raise $120M in rights issue

Nov. 9 (BusinessWire) – PGG Wrightson, New Zealand’s biggest rural services company, risks further annoying shareholders with its proposal to sell a cornerstone holding to China’s Agria and may now seek to tap investors for a further $120 million, according to Morningstar.

Wrightson has to raise enough funds to meet $200 million of debt repayment in March. It could realize $40 million-$50 million from a reduction in working capital and sale of non-core assets, said Morningstar analyst Nachi Moghe, in a Nov. 6 report on the company. It will raise $36 million selling a 13% stake to Agria, leaving a further $120 million to be funded via a rights issue.

The agreement with Agria, which is yet to file its 2008 accounts in the U.S. and is battling four class action lawsuits, may reflect “the firm is so desperate for cash given the deadline date of March 2010 that it doesn’t mind partnering with a small Chinese firm with a dubious record,” Moghe said.

“We sympathise with shareholders and don’t blame them for being skeptical about the deal,” he said. Management and directors “are skating on thin ice” with shareholders already peeved at the loss of almost $50 million to settle the failed Silver Fern Farms deal last year. “They can’t afford to make another blunder.”

Moghe has a ‘hold’ recommendation on Wrightson shares and a fair value of $1.90. The shares rose 3.2% to 64 cents on the NZX today.

Morningstar kept it annual profit forecasts for 2010 and 2011 unchanged bit said if the company were to raise $120 million through a rights issue in addition of Agria’s capital injection, then its per-share earnings estimates would fall by 37% and 30% respectfully over the next two years.

Wrightson hired First NZ Capital and UBS to assist with a capital review and study of options for meeting its new bank debt schedule.


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