Former Hanover debenture holders face massive dilution

Former Hanover debenture holders who had their interests converted into Allied Farmers shares in late 2009 are facing a massive but as yet unquantifiable dilution.

Friday, August 19th 2011, 7:34AM 3 Comments

Allied Farmers says those holding shares before the debt-for-equity swap when the company acquired Hanover's loans are in line for a significant bonus share issue.

Hanover's debenture holders had their interests converted into a majority holding in Allied Farmers as part of the transaction and now the bonus shares will significantly dilute their holdings.

"Given the likely extent of the impairment of the acquired loans and property assets since acquisition, the calculation is expected to result in a significant number of new shares being issued" to pre-Hanover-deal shareholders, Allied Farmers told NZX late Thursday.

It says it hasn't yet received all the valuations of the remaining loan and property assets acquired from Hanover and sister company United Finance, but "it is likely that these valuation will result in further impairments."

Hanover's assets were valued at $396 million in late 2009 and had been written down to just below $110 million at December 31 last year.

When it knows how many bonus shares will be issued, Allied Finance says it will then be able to calculate how many additional shares will need to be issued to the institutional and professional investors who participated in its $2.25 million share placement at 2.5 cents per share on August 3 last year.

"Again, this is likely to result in a significant number of new shares being issued to these institutional and professional investors."

According to announcements to NZX lodged by Allied Farmers, 90 million shares were issued in the placement. Allied Farmers currently has 2.04 billion shares on issue of which former Hanover and United Finance debenture holders were awarded 1.91 billion.

The company said then, in order to protect the new investors, that any future erosion in net tangible assets would mean their shares would be increased at June 30, 2011 according to a formula which was to be contained in a rights issue prospectus.

The rights issue was called off on August 9 last year so the prospectus was never issued.

Allied Farmers' shares last traded at 0.8 cents.

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Comments from our readers

On 19 August 2011 at 9:47 am alison said:
Another kick in the guts for ex Hanover investors. But to some extent they have themselves to blame. If they had held onto their Hanover debentures (rather than voting to swap for AN shares,most of them would have ben able to claim a tax deduction for the loss. But they can't do that with the AN shares......
On 19 August 2011 at 11:38 am Liz said:
Hanover investors followed all the recommendations of their company and independent advisor report. What is scandalous here is not (so much) the dilution from the bonus shares, but the possible dilution from a relatively small placement. At time of issue, it looks as though the NTA was already well below the 2.5cps on which the calculation of adjustment was to be based, yet I cannot see where shareholders were advised of or asked to ratify this provision. Further, the failure of ANF should have made this material and it should at least have been brought to the markets attention at this point.

The NTA could well be down around 0.4cps after the revaluations, sale of ALF and conversion of bonus shares. After the deduction of 0.2cps in the formula, that is going to see the number of shares issued under that "2.5cps" placement blow out massively.

On 19 August 2011 at 12:30 pm bill said:
I would be amazed if most Hanover Debenture holders could have claimed a tax loss, a small number perhapes but not most.
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