The company, which has slashed the value of Hanover Finance assets it purchased last year, will undertake a $2.25 million institutional placement at 2.5c per new share, and a rights issue to Allied Farmers shareholders entitling them to one new share at 2.5c per share for every three shares held.
McDouall Stuart Group has underwritten the capital raising for $9 million, having arranged the institutional placement.
Forsyth Barr broker Peter Young said that Westpac had rolled over Allied's debt facility, but now appeared to be putting on pressure for the company to reduce debt and restructure.
"I would also think that realising Hanover assets is proving to be harder than first envisaged.
"You would have to wonder why you would want to invest in this company."
The share price tumbled nearly 30% to around 4c soon after the announcement.
Mr Young said the 2.5c a share offer price was a "decent discount" to try and encourage shareholders to take it up.
He was surprised the share price had not fallen further, closer to 2.5c.
Mr Young was concerned about where the money would be placed.
"We hope that the funds don't go to the finance company as it needs total recapitalisation and that would take a lot more than $19 million," he said.
Allied chairman John Loughlin said Allied had decided that the rights issue with a placement was the best current option to bring in fresh capital to launch some of the planned initiatives.
It also gave the company the time needed to realise good value from the asset portfolio, and continue the focus on reducing debt.
Last month, the company negotiated a further six-month extension of its $16.5 million loan facility with Westpac as it sought new bank funding options.
The company wanted to protect investors, given challenges in the rural and finance sectors and the flat market for the realisation of the ex-Hanover and United assets, Mr Loughlin said.
Allied recently sold the 23.5ha Five Mile property near Queenstown, formerly a Hanover asset, for close to its latest valuation.
The company purchased $396.2 million of Hanover Finance and United Finance assets last year and has since written them down to $124 million.
"We continue to seek opportunities for realising value from those assets and we have a number of initiatives planned for our rural services businesses that will differentiate our business and stimulate our market share," Mr Loughlin said.
The new shares will be renounceable, so shareholders will be able to sell their rights to shares on the NZX.
McDouall Stuart has the right to apply for any shares not taken up.
The prospectus will be lodged early net week, and documentation sent to shareholders from August 11.
