Dorchester wants to buy back its $15m notes early for 92c in the dollar
Dorchester Pacific wants to redeem its nearly $15 million of capital notes more than nine months early because the company's obligation to repay them is preventing the company from securing funding to grow its lending book
Tuesday, July 24th 2012, 10:41AM
by Jenny Ruth
The need to repay the notes, due to mature on June 30, 2013, "has been a significant obstacle in our way to securing bank funding to grow the lending book of Dorchester Finance," says chief executive Paul Byrnes.
Dorchester is offering to buy the notes back at $92 per $100 face value no later than September 12 compared to the last sale on the NZX debt market on July 12 at $79.35 per $100 face value.
Byrnes says the company has been successful in securring a new funding line enabling it to repay the notes early.
"The proposal and repayment are subject to the terms of the funding line becoming unconditional to Dorchester's satisfaction," he says.
Dorchester commissioned a report by Simmons Corporate Finance to assess its buyback proposal which concludes the terms and conditions are fair to noteholders.
The Simmons report notes the Dorchester offer is a significant premium of between 15% and 22% to where the notes have traded on NZX over the past year.
It also says the price Dorchester is offering is at the top end of its valuation range of between 88 cents and 92 cents per note.
"Directors believe that the outstanding notes and the perceived uncertainty around their repayment is adversely affecting Dorchester's share price," says chairman Grant Baker.
"It has also been, and would otherwise remain, an obstacle to any merger and acquisition that would help the Dorchester group achieve scale and profitability. Resolving the notes issue now is a game-changer for Dorchester," Baker says.
Because the trust deed for the notes doesn't allow for such a buyback, Dorchester has called a meeting of noteholders to vote on its proposal for August 14. To succeed, the measure needs to be supported by 75% of noteholders voting.
Dorchester shares rose 0.5 cents to 10 cents following the buyback announcement, valuing the company at $18.1 million. That's the highest level the shares have traded at since October last year when they reached 11 cents. They fell as low as 6.5 cents in December.
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