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Hanover investors face dilution in Allied bonus issue

Hanover investors face dilution in ‘significant’ Allied bonus share issue

By Paul McBeth

Aug. 18 (BusinessDesk) – Investors in the Hanover and United Finance companies are facing further losses in their near-worthless Allied Farmers Ltd. shares as the company prepares to compensate its original shareholders from before the unsuccessful merger.

Allied Farmers expects it will have to issue a “significant number” of new shares to investors who held shares in the company before it took on $396 million of toxic Hanover loans in December 2009 in a debt-for-equity swap. To protect their interests, pre-merger shareholders who participated in a placement in 2009 were entitled to extra shares if the value of the loans was less than $396.2 million.

Allied Farmers’ board expects further write-downs in the value of the Hanover and United loan books, which have already shed more than three-quarters of their value, which will lift the number of bonus shares.

The full extent of the dilution won’t become apparent until Sept. 28, when Allied Farmers says it will have its audited annual accounts prepared by. It will announce its unaudited result on Aug. 29 once it receives all of the valuation reports.

The Hawera-based company made a first-half loss of $20.6 million, widening its loss of $15.7 million a year earlier.

The deal was meant to give Hanover and United debenture holders a way to get some money out of the frozen finance companies, but instead the share price has plunged to just 0.8 of a cent, valuing Allied Farmers at $16.3 million.

Allied Famers issued almost 1 billion shares at 20.69 cents apiece to enact the deal, which pitched a best-case scenario of returning 70 cents in the dollar to Hanover investors. That meant they controlled about 97% of the company, which had just 37.7 million shares on offer before the merger.

The diminishing value of the loans sparked a war of words between Allied Farmers and former Hanover owners Mark Hotchin and Eric Watson. That’s wound up in court, after Allied Farmers refused to pay out the final $5 million cash instalment of the deal.

The failure of Allied Farmers to transform itself into a major lender also took the scalps of former chairman John Loughlin, who stepped down in August last year, and managing director Rob Alloway.


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