Pyne Gould rally sign clouds are lifting

Shares in Pyne Gould Corporation assumed a much firmer tone in their first day of ex rights trading as 20.7 per cent subsidiary PGG Wrightson's recapitalisation deal with Chinese firm Agria further fuelled hopes the clouds over New Zealand's listed rural sector companies are lifting.

PGC shares rose 6c to 47c on Friday, their highest since trading in the rights began at the start of the month.

Hamilton Hindin Greene broker James Smalley was surprised to see the rise, given investors could have effectively bought new shares for just 40.1c by buying the rights, at 0.1c each, in preceding days and paying the required exercise price of 40c.

"Now you can't get them for love or money at 45c or 46c," Smalley said.

Market commentator Arthur Lim noted the sheer volume of rights issued put pressure on PGC's head shares, "but there was always the expectation that the share price would lift when the rights trading ended".

However, the announcement of PGG Wrightson's $36 million deal with Agria by which the Chinese company will take a 13 per cent stake in an 88c a share placement had provided support to PGC. PGG Wrightson shares, 20.7 per cent of which are held by PGC, rose 13c or 20 per cent to 78c.

"The Wrightson announcement certainly is a positive in the sense that yesterday the future for Wrightson still looked very uncertain," Lim said on Friday. "There was still a possibility felt in the marketplace that Wrightson could fall over whereas today Wrightson has gone from being a liability to being a potential upside asset.

"I suspect that the institutions who, by and large, have shunned the [PGC] issue are going to have to look very closely at what they're going to do because this thing is going to go into the NZX50 easily."

The PGG Wrightson deal, which the company said would be followed by an announcement of further recapitalisation plans next month, is good news for a sector of the sharemarket that has taken big hits in the past year.

"To me, in conjunction with the economic upturn that we're starting to see, hopefully it marks the last of the market recapitalisations that's required and from here on in hopefully it's onwards and upwards," said Lim.

PGC chairman Sam Maling welcomed the Agria deal on Friday and said the resulting dilution of his firm's 20.7 per cent stake to 18.5 per cent was of "immaterial" concern.

The resulting dilution may be more of a concern for Craig Norgate and the McConnon family's Rural Portfolio Investments. Subsidiary Rural Portfolio Capital, which largely exists to finance its parent's holding in PGG Wrightson, on Friday raised some uncertainty about its ongoing ability to fund its commitments to note-holders.

RPI and RPC rely heavily on the dividend stream from PGG Wrightson to fund payments to investors and the Agria placement dilutes their shareholding, and consequently its share of dividends, from 29.2 per cent to 25.8 per cent.