Hanover investors told Allied deal is better

The Allied Farmers proposal is superior to the status quo and a high risk of receivership for Hanover Finance investors, according to Grant Samuel.

In an independent report being sent to investors, Grant Samuel said an alternative cash offer for Hanover was a remote possibility, and if it were to eventuate from another party it would be at a substantial discount to the current book value.

For all intents and purposes the proposal from Allied Farmers is a back door listing of Hanover.

Debt instruments of Hanover are converted to equity in Allied Farmers, with Hanover investors owning 97 per cent Allied Farmers at completion of the proposed transaction.

In December 2008 Hanover investors approved a debt restructure that involved a suspension of interest and principal payments.

Earlier this month investors were advised that full repayment under the plan was no longer likely. Then Allied Farmers put forward its plan.

Allied Farmers shareholders are to vote on the proposal on December 8 with a 50 per cent hurdle for approval and Hanover investors vote with a 75 per cent hurdle for approval in each class of investor.

After instituting the debt restructuring Hanover was effectively undertaking a managed wind down of its loan book to meet its repayment obligations under the debt restructure.

It was not taking new deposits or making any new loans, Grant Samuel said.

"In Grant Samuel's opinion, 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.

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.

The transfer of performing loans of Hanover to Allied Finance will strengthen its balance sheet and assist, but not necessarily assure, Allied Nationwide of obtaining a credit rating, which is required to participate in the extended Crown retail deposit scheme.

Allied Nationwide's ability to obtain a satisfactory credit rating was by no means certain, the report said.

About 20 per cent of Hanover Finance's portfolio of investments is considered to be performing. These are expected to be transferred from Allied Farmers to its subsidiary Allied Nationwide.

It is possible that the share price of Allied Farmers will decline materially in the short term if the proposal goes through as Hanover investors look to monetise, or cash up their investment in Hanover.

Grant Samuel notes that a $20 million package supported by guarantees from Hanover shareholders Mark Hotchin and Eric Watson falls away if the proposal is implemented.

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

David Henry, chairman of Hanover Finance, Hanover Capital and United Finance, confirmed today that directors have unanimously recommended that all classes of investors vote in favour of the Allied Farmers proposal.

- NZPA