Price rally helps Silver Fern Farms sell PGG Wrightson shares

Silver Fern Farms took advantage of a recovery in the share price of PGG Wrightson - which yesterday announced a new cornerstone shareholder - to quit its 10 million shares in the rural servicing company.

Chinese agricultural business Agria has paid $36 million, the equivalent of 88c a share, for a 13% stake in PGG Wrightson (PGGW), provided through the placement of new shares, but said it wanted to increase its stake without gaining a controlling interest.

The sharemarket yesterday reacted favourably to the news, with the PGGW share price peaking yesterday at 90c and closing last night at 78c, an increase of 13c, or 20%, on Thursday's close.

The Silver Fern Farms (SFF) offering aside, three million shares were traded.

Craigs Investment Partners broker Chris Timms said with SFF recently announcing it wanted to sell its shares, part of a settlement package for PGGW failing to complete a partnership deal, a lift in the share price from about 60c earlier in the week proved an ideal opportunity.

SFF chairman Eoin Garden said the rising share price and PGGW planning a rights issue meant the time was right to sell, with the shares sold in two lines on the open market for between 73c and 79c.

The shares were valued on the SFF balance sheet at about their selling price, and Mr Garden said the money would be used to repay debt.

PGGW chairman Keith Smith was yesterday selling the Agria deal as a vehicle for the rural servicing company to look at business opportunities in China, but it also provided the debt-laden company with some badly needed breathing space.

Mr Smith said details of the rights issue would be revealed next month.

Agria has said it would participate.

Mr Timms said while PGGW needed a cornerstone shareholder, the deal provided shareholders with some welcome good news and confidence ahead of that rights issue.

"Now they can move to the next stage - the rights issue. They have got a cornerstone shareholder, a stronger balance sheet and positive news for shareholders ahead of the rights issue," he said.

It was a win-win for both parties.

Agria received a stake in New Zealand's largest rural servicing company and the world's premier protein producer, while PGGW got cash, a boost to its balance sheet, the ability to pay down debt and the removal of uncertainty.

The deal was conditional on getting Overseas Investment Office approval, a process Mr Smith said was almost complete, and future equity-raising being underwritten.

But, significantly, PGGW has to raise sufficient new equity to repay its $200 million amortising debt facility.

PGGW chief executive Tim Miles said New York Stock Exchange-listed Agria was the standout of several partners PGGW had considered, but a reason it was chosen was it gave PGGW access to China.

He said the two parties would pool their expertise and strength to further develop and commercialise seed cultivars, with Agria having access to one of the largest seed banks in the world at the China National Academy of Agricultural Sciences.

Agria wished to develop a livestock trading business in which PGGW could assist, but Mr Miles said China was also looking for live farm animals, demand the company could fill or sit back and leave to other countries.

Mr Miles said Agria also wanted to establish a rural servicing business, and the two partners would examine additional funding lines through third parties for PGG Wrightson Finance.