China's Agria emerges as biggest Wrightson shareholder

PGG Wrightson managing director Tim Miles. Photo / Martin Sykes.

Agria will become the biggest shareholder of PGG Wrightson after the unprofitable rural services group raises a total of $249.4 million selling shares and notes to slash its debt levels.

Wrightson will raise $180.1 million via a fully underwritten rights issue of nine shares for every eight held at 45 cents apiece, a 31 per cent discount to their trading price yesterday. It is raising $36.2 million selling shares at 88 cents each to Agria, which will also buy about $32.5 million of convertible redeemable notes at an initial interest rate of 8 per cent.

The series of transactions marks a shake-up among the cornerstone shareholdings of Wrightson. Rural Portfolio Investments, the private vehicle of Craig Norgate and Baird McConnon that owns 27.5 per cent of Wrightson, will not subscribe for more shares and will sell about 58 per cent of its rights to Agria, resulting in its holding being diluted to as little as 11.8 per cent.

Pyne Gould Corp., with 20.7 per cent currently, will take up its entitlement and end up with about 18.3 per cent in the enlarged company.

Agria, the China-based seed and agricultural research company, will end up with 19 per cent of Wrightson.

The transactions will allow Wrightson to repay about $277 million by June 2010, including $200 million due in March that had been weighing on the prospects for the company. The company is also selling non-core assets and expects to receive a performance fee from NZ Farming Systems Uruguay.

"The coming debt repayment will ensure that PGG Wrightson is appropriately capitalised for the current economic and trading environment," said chairman Keith Smith. "The company will be well placed to enhance value for shareholders, supporting its current operations and enabling new opportunities to be progressed where there is a compelling business case."

Wrightson failed to complete the acquisition of half of Silver Fern Farms for $220 million last year as the financial crisis cut off its funding pipelines. Costs of the failed deal contributed to its full-year loss.

The company has had a shake up at both executive and board level and today signalled it has commenced a formal review of its current board make up. Tim Miles was appointed chief executive last year and has since overhauled his executive team.

"Tim Miles has a very good reputation as CEO - he's moved into a difficult are of a difficult industry and made some reasonable changes to the business," said Paul Harrison, who overseas $180 million at BT Funds Management in Auckland. "But he's been held back by the capital structure - hopefully this will fix it."

Harrison said he is still assessing the offer. "Agriculture has extra risk - it has good and bad years so it should be valued on multiples of industrial companies," he said.

PGG Wrightson Finance, which has a loan book valued at about $560 million, will benefit from the sale of notes to Agria, with the $32.5 million proceeds to be invested in new capital in the finance business. That will allow Wrightson Finance to "comfortably meet" the minimum capital ratio requirements of the new regulatory regime for non-bank deposit taking institutions.

Wrightson Finance expects to get a credit rating from either Fitch or Standard & Poor's of at least BB.

UBS New Zealand and First NZ Capital are underwriting the rights issue.