Managing director Rob Alloway warned yesterday that Allied Farmers could default on a loan to Allied Nationwide Finance on July 1 because of a difficulty in selling assets to raise the money to repay debt.
The fall in forecast asset sales in the period to June 30 was the result of challenging conditions driven by market saturation of finance company assets.
"This position is broadly consistent with that being experienced by other finance companies, many of whom are in receivership and were beneficiaries of the Government's retail deposit guarantee scheme," he said.
It appears that Allied Farmers could default on an outstanding balance of up to $7.5 million this year. The Allied group took over the loan book of Hanover Finance, the value of which has been written down substantially.
A first loan facility of $8.9 million granted to Allied Farmers Rural had a current balance of $7.5 million. That was due for repayment by July 1.
The second loan facility was granted to Allied Farmers Ltd. It had an outstanding balance of $11.7 million that was due for repayment on July 1 next year.
Mr Alloway said that at the time the loan agreements were entered into, the group's financial forecasts illustrated there would be sufficient funds from asset sales to fully repay the first loan before July 1 this year.
"The board has now revised the forecasts and these indicate it will be difficult to conclude sufficient realisations by June 30 to fully repay the balance of the first loan by the due date.
"However, some asset realisations will be concluded between now and the due date, which will further reduce the outstanding balance under the first loan."
Although the forecast sales required to fully repay Nationwide Finance had not been achieved, there had been better success on the sale of properties the group owned at Jack's Point and Clearwater. That meant a reduction of debt on those properties from $13.3 million at the end of last year to $10.4 million now.
Sales contracts that were expected to settle before June 30 would result in further debt retirement of about $4.7 million.
"Furthermore, we are confident that in such a strong rural environment our rural business will be able to generate solid revenue and growth in some areas," Mr Alloway said.
That was important because the rural business assets were a component of Allied Nationwide Finance's security package, he said.
Allied Farmers' shares were down 7% yesterday.
