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Hanover investors unlikely to get a say on share dilution

Allied Farmers (ALF) appears to have found a way to massively dilute the former Hanover debenture holders without the need for a shareholders' vote.

Friday, October 28th 2011, 9:12AM

by Jenny Ruth

The Hanover investors currently own 93.6% of the company and look set to be diluted to less than 32% if ALF issues all the new shares it wants to.

Earlier this month, ALF said it is obliged to issue a further 977.4 million shares to the institutions who invested $2.25 million by buying 90 million ALF shares at 2.5 cents per share in August last year.

The terms of the placement included compensating those institutions if ALF's net tangible assets fell between the placement and June 30 this year.

However, NZX listing rules don't allow the company to issue more than 20% extra shares in any one year - a maximum of 390.6 million shares in ALF's case - without shareholder approval.

Earlier this month, ALF said it would ask shareholders to approve issuing the additional 586.8 million shares at the November 29 annual general meeting.

But now ALF says its decision to convert its $12.6 million capital notes to equity when they mature on November 15 means these additional shares can be included in calculating the 20% limit mandated in the listing rules.

"The exact number of shares issued on that conversion will be determined after November 14 but the present assessment is that this issue will increase the number of ordinary shares on issue" sufficiently to allow it to issue the additional 586.8 million shares after the conversion.

"Because of this further assessment," ALF expects a shareholder vote won't be required. However, it appears there is some doubt about its "further assessment" because the company says "if this proves not to be the case, as EGM (emergency general meeting) will be held at a later date."

If the notes were converted at the current 0.3 cents share price, that would mean about 3.8 billion new shares being issued - the actual conversion price will be a 5% discount to the weighted average share price over the 20 business days before November 15.

ALF currently has 2.04 billion shares on issue. It will also issue 118.1 million new shares to those who held Allied Farmers' shares before the Hanover transaction to reflect the falling value of the Hanover assets.

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