Hanover doomed without deal

Mark Hotchin and Eric Watson's Hanover Group is headed for receivership if Allied Farmers' proposed debt for equity swap cannot be completed, the Grant Samuel report on the transaction found.

However both Grant Samuel and Guinness Peat Group's Tony Gibbs, who yesterday confirmed his company had decided against tabling an alternative offer, raised questions about the deal's merit for Allied Farmers and its shareholders.

As inadvertently disclosed by Allied Farmers last week, Grant Samuel recommended Hanover and United bondholders vote in favour of the offer which it deemed "fair", superior to the current moratorium or receivership, and that a better offer was unlikely.

Hanover's independent directors yesterday officially fell in behind the report's findings. But in supporting its conclusions Grant Samuel indicated Hanover's prospects without the deal were dim.

"Barring a significant recovery of the finance and property sectors in New Zealand, continuation of the debt restructure is more likely than not to ultimately end in the receivership of Hanover," the report said.

Grant Samuel noted the threat of receivership was not good for the day-to-day management of Hanover or for the likely realisable value of the remaining securities.

It also said that a $20 million package supported by guarantees from Hanover shareholders Mark Hotchin and Eric Watson, under the debt restructuring plan falls away if the proposal is implemented.

$10 million cash currently held in escrow is transferred to Allied Farmers under the proposal.

"However, it is important to note that the personal guarantees also fall away in the event of a receivership, which is an increasingly likely scenario," Grant Samuel said.

However, while the transfer of Hanover's performing loans to Allied Farmers' finance subsidiary Allied Nationwide Finance would strengthen its balance sheet and assist efforts to obtain a credit rating and thereby cover under the extended Crown retail deposit scheme next year, Allied Nationwide's ability to obtain a satisfactory credit rating was by no means certain, the report said.

Although tipped by some media last week as a potential bidder for Hanover's assets, GPG's New Zealand boss Tony Gibbs yesterday confirmed his company had taken a hard look at Hanover but would not proceed.

"We've had a very good look at this. I've got a file of assembled material and opinion that looks about three inches thick ... and it's the end of it for us. I'm not sure anyone can value the thing at this point in time.

"GPG is definitely not interested."

Gibbs said he was unsure the proposal now on the table was good for Hanover bond holders or Allied's shareholders, which include his own company. "The whole thing to me looks like a pile of custard."

Grant Samuel also warned that the process of setting the value at which Hanover and United securities are converted to Allied Farmers equity would make it very easy for Allied's share price to be manipulated to the disadvantage of Hanover investors.

"It would be unfortunate for the investors if the Allied Farmers share price increased in the days leading up to the meetings and then, if the proposal was approved, the price fell back to, or below, its current level."

Hanover will be holding a series of investor briefings on the Allied proposal this month including one on December 10 in Auckland.

Hanover and United Finance investors will vote on the proposal on December 16.