Notes accompanying Rural Portfolio Capital's (RPC) six-month accounts to December 31, 2009 warned of a serious income shortfall from PGG Wrightson (PGGW) suspending the payment of dividends and the continued depressed share prices of its key investments, PGGW and New Zealand Farming Systems Uruguay.
RPC and Rural Portfolio Investments Securities (RPIS) are wholly owned financing subsidiaries of Rural Portfolio Investments (RPI), the investment arm of Dunedin's McConnon family and Craig Norgate.
"The interim financial statements have been prepared on a going-concern basis," notes in RPC's interim accounts state.
"If PGGW do not recommence dividend payments and if the PGGW and NZFSU share values remain at depressed levels, the ability of the RPI Group to meet its future obligations under the terms of issue of redeemable preference shares and its obligations to New Zealand financial institutions will be affected."
Those concerns materialised in recent weeks, firstly with the sale by RPIS of 48.5 million PGG Wrightson shares for $27 million, and then last Friday when RPC said it could not find $1.45 million needed to top up the dividend escrow account for the $60 million of redeemable preference shares.
Late on Monday the issue came to head, with receivers called in for RPI and RPC after directors said they could not meet their trust deed obligations.
RPC has to settle $60 million of redeemable preference shares on April 15 next year, but has just $29.63 million of secured assets, comprising shares in 46.8 million shares in PGGW and 10 million in NZFSU, and $742,314 in the dividend escrow account.
With little likelihood RPC or redeemable preference share guarantor RPI could fully fund the escrow account in the required time, the trustee, Trustee Executors, had to take enforcement action.
The trust deed states that the dividend escrow account held funds required for the next dividend payment and that required the deposit of $2.13 million on April 15 which was not made.
In addition, RPIS was required to make quarterly interest payments on loans of $1 million and repay $25 million in loans on April 15.
RPI relied on income specifically from PGGW in the form of dividends, directors' fees and income from cash deposits, to function.
Baird McConnon was previously a PGGW director and Craig Norgate a former chairman.
Mr McConnon's brother, Alan, still sits on the PGGW board.
As at December 31, the PGGW share price was 59c compared with a valuation of $1.15 a share carried on RPC's books.
In the last year, the shares have traded between 53c and $1.56 but have settled around 55c.
RPI bought 10 million New Zealand Farming Systems Uruguay shares for $1 each but the stock has traded from 37c to 69c and was this week listed at 40c.
