Former Hanover debenture holders face massive dilution

Former Hanover debenture holders who had their interests converted into Allied Farmers shares in late 2009 are facing a massive but as yet unquantifiable dilution.

Friday, August 19th 2011, 11:27AM

Allied Farmers says those holding shares before the debt-for-equity swap when the company acquired Hanover's loans are in line for a significant bonus share issue.

Hanover's debenture holders had their interests converted into a majority holding in Allied Farmers as part of the transaction and now the bonus shares will significantly dilute their holdings.

"Given the likely extent of the impairment of the acquired loans and property assets since acquisition, the calculation is expected to result in a significant number of new shares being issued" to pre-Hanover-deal shareholders, Allied Farmers told NZX late Thursday.

It says it hasn't yet received all the valuations of the remaining loan and property assets acquired from Hanover and sister company United Finance, but "it is likely that these valuation will result in further impairments."

Hanover's assets were valued at $396 million in late 2009 and had been written down to just below $110 million at December 31 last year.

When it knows how many bonus shares will be issued, Allied Finance says it will then be able to calculate how many additional shares will need to be issued to the institutional and professional investors who participated in its $2.25 million share placement at 2.5 cents per share on August 3 last year.

"Again, this is likely to result in a significant number of new shares being issued to these institutional and professional investors."

According to announcements to NZX lodged by Allied Farmers, 90 million shares were issued in the placement. Allied Farmers currently has 2.04 billion shares on issue of which former Hanover and United Finance debenture holders were awarded 1.91 billion.

The company said then, in order to protect the new investors, that any future erosion in net tangible assets would mean their shares would be increased at June 30, 2011 according to a formula which was to be contained in a rights issue prospectus.

The rights issue was called off on August 9 last year so the prospectus was never issued.

Allied Farmers' shares last traded at 0.8 cents.

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