Allied Farmers stock sinks on covenant breach

Published: Thu 22 Oct 2009 11:19 AM
Allied Farmers stock sinks on covenant breach, strategic review planned
Oct. 22 (BusinessWire) – Allied Farmers Ltd. stock sank, extending its six-month decline to more than 45%, after the rural services and finance group said it breached a lending covenant and said trading conditions are “tough.”
The shares fell 3.6% to 27 cents, valuing the company at $11.3 million. Chairman John Loughlin said the company is embarking on a strategic review of its capital structure, market presence and operations after posting a loss in 2009.
Westpac Banking Corp. has granted a waiver to the company after it breached banking covenants in the September quarter, Loughlin said in a market update today. He didn’t immediately return calls seeking more details.
“We are continuing to experience tough trading conditions, a situation which has been ongoing for a number of months, and we are carefully examining how we can improve operating performance,” he said.
Allied posted a pretax operating loss of $5.7 million in the year to June 30, which swelled to a net loss of $33 million once a $20.5 million reduction in the carrying value of its Allied Nationwide Finance unit and $9.7 million of loan provisioning was included. At the time of the earnings announcement in August, Loughlin said the company believed it was “nearing or at the bottom of the cycle in both the rural and finance company sectors.”
This month, Allied Farmers said it had gained commitment from an investor to subscribe for $7 million of equity in the group. The funding would provide the company with “headroom” to look at deals that would aid consolidation and restructuring in its main business sectors. It expects to announce details of the equity raising shortly.
The company has been in talks with “a number of entities” in recent months with a view to consolidation using Allied’s status as a listed company.
Loughlin said while Fonterra’s announcement of higher milk-fat payments was welcome new, “it is likely to take some time to flow down into the wider rural economy.”

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