- Release Date: 23/08/13 14:14
- Summary: WAV/RULE: ALF: ALF - Application for a Waiver from NZSX Listing Rule 9.2.1
- Price Sensitive: No
- Download Document 17.01KB
ALF 23/08/2013 12:14 WAV/RULE REL: 1214 HRS Allied Farmers Limited WAV/RULE: ALF: ALF - Application for a Waiver from NZSX Listing Rule 9.2.1 NZX Regulation Decision Allied Farmers Limited (ALF) Application for waiver from Listing Rule 9.2.1 22 August 2013 Background 1. Allied Farmers Limited ("ALF") is a Listed Issuer with ordinary shares quoted on the NZX Main Board. 2. ALF has operated a bobby calf business since 2001 which involves the purchase of bobby calves from farmers, contracted processing, and on-sale of products. Following a re-structure, the bobby calf business is now operated by ALF's partly-owned subsidiary, NZ Farmers Livestock Limited ("NZFL"). NZFL operates the business through its subsidiary Farmers Meat Export Limited ("FMEL"). 3. To assist with funding the bobby calf business for the 2013 and 2014 seasons, FMEL is seeking to enter into a working-capital facility for not more than $1.5 million per annum with Garry Bluett and another funder who is not a Related Party (as joint lenders) (the "Loan"). Mr Bluett's proportion of the joint lending will be 15 per cent or less. The purpose of the Loan is to fund the working capital of FMEL, which is required to purchase inventory (being bobby calves) and cover costs related to such inventory. 4. The Loan will include the following principal terms: (a) Security by way of a charge over the product inventories. No other security or guarantees will be provided by ALF or any other company in the ALF group; (b) The funders may advance funding of up to an additional $1.5 million for the 2014 season provided that the 2013 season funding plus interest and costs have been fully repaid (the intention being that the liability to the funders will not at any one time exceed $1.5 million plus interest and costs); (c) Interest of 10.9% per annum, payable monthly in arrears; (d) Default interest of 17% per annum; (e) Loan funds advanced for the 2013 season will be repayable by 31 December 2013; and (f) Loan funds advanced for the 2014 season will be repayable by 31 December 2014. 5. Garry Bluett is a director of ALF, and is, therefore, a Related Party of ALF pursuant to NZSX Listing Rule ("Rule") 9.2.3(a). 6. Rule 1.6.6 extends the definition of Issuer to include, as the context permits, all members of any group of companies of which the Issuer is the holding company or otherwise has a controlling interest. FMEL is a subsidiary of ALF as it is 100% owned by NZFL, which is 67.73% owned by Allied Farmers Rural Limited ("AFRL"). AFRL is 100% owned by ALF. Accordingly, entry into the Loan by its subsidiary, FMEL, will constitute entry into a transaction by ALF for the purposes of Rule 9.2.1. 7. As at 30 July 2013, ALF's Average Market Capitalisation ("AMC") over the previous 20 Business Days was approximately $1.6 million. As the value of the Loan may be up to $1.5 million at any one time, this would exceed 10% of ALF's AMC, which is likely to be approximately $160,000. Therefore, it is expected that the Loan, when entered into, will constitute a Material Transaction with a Related Party for the purpose of Rule 9.2.1(a). Application 8. ALF has applied to NZX Regulation ("NZXR") for a waiver from Rule 9.2.1 to enable FMEL to enter into the Loan without the prior approval of ALF's shareholders. 9. In support of its application ALF made the following submissions: (a) The purpose of Rule 9.2.1 is to ensure that a Related Party does not exercise undue influence, or use its personal connections, to reach a favourable outcome, or a transfer of value, to a Related Party, in respect of a transaction, and that shareholders are given an opportunity to review transactions where the Board of Directors of a listed company may have been subject to an actual or perceived influence from a Related Party. (b) In situations where NZXR is satisfied that the Related Party did not materially influence the decision to enter into the relevant transaction, and there is evidence that the transaction is arm's length, and in the best interests of the company, NZXR may waive the requirement to obtain shareholder approval. This approach is reflected in the following NZX waiver decisions, each of which concerned the provision of finance by a Related Party: (i) NZ Windfarms Limited dated 20 November 2009; (ii) Eastern Hi Fi Group Limited dated 25 June 2009; (iii) Broadway Industries Limited dated 12 September 2008; and (iv) Allied Farmers Limited dated 24 July 2012. (c) The provision of the Loan to FMEL is being made on arms length, commercial terms, the benefits of which are demonstrably materially beneficial to ALF. The bobby calf business is a significant contributor to the profits of FMEL and NZFL, which, via distributions from NZFL to ALF, make up almost the sole source of revenue for ALF. Without the Loan, the bobby calf business would be unable to operate for the 2013- 14 seasons, and the revenues of ALF would materially deteriorate, meaning that one of the assumptions underlying ALF's going concern would no longer be valid. A likely outcome of that would be the insolvency of ALF, resulting in a catastrophic loss in value for ALF's shareholders. (d) The joint lender with Mr Bluett is not a Related Party of ALF. The joint lender is not a relative of Mr Bluett nor is the joint lender a business associate of Mr Bluetts' other than in relation to the Loan and previous years' loans to FMEL. The fact that the joint lender is unrelated and is contributing 85 per cent or more of the Loan underscores the rationale for the Loan terms being agreed on an arms length and commercial basis. (e) The costs associated with seeking shareholder approval for the Loan would far outweigh the benefits in the context of ALF's very low AMC. (f) The funding which would be made available by the Loan is urgently required for FMEL's operation of the 2013 bobby calf business as the 2013 bobby calf season has already started. (g) ALF's working capital is fully committed to existing and forecast obligations, and therefore ALF does not have sufficient spare funds available to fund the costs of the required independent appraisal report and shareholders' meeting. (h) Theoretically the last opportunity that ALF had to seek shareholder approval for the Loan without having to incur the significant cost of a shareholders' meeting to specifically consider this matter would have been the Annual Meeting held in November 2012. However, AFL submits that it would have been impossible to seek consent at that time to the Loan because: (i) Based on the information that ALF had at the time, a related party loan similar to the 2012 season loan was not the likely or preferred funding option that ALF contemplated would be secured for the 2013 season. However, due to the 2013 drought impacting on FMEL earnings, the resultant need for funding levels much higher than expected, coupled with a delay for NZFL in obtaining ownership of key saleyard interests leading to lower capital and assets available for security, meant that the preferred option of trading bank funding has not been available. The seeking of a Loan from a related party, whilst acknowledged as having occurred in both the 2011 and 2012 seasons, is unusual and has very much been a last resort. As mentioned above, ALF expected that NZFL and/or FMEL would be able to source funding from a typical third party such as a trading bank given the successful track record that was established in 2011 and 2012. However, it has transpired that typical lenders have maintained the view that although it is possible for lending to FMEL to be secured against insured bobby calf/veal products, to some degree the security available remains unattractive to third party lenders due to the fact that most of the product is exported to numerous overseas markets and there is significant volatility in returns on the product. This also reflects the overall risk profile of the business. An approach to the NZFL banker has confirmed this view; (ii) Even if ALF had speculated in 2012 that it may require further funding for the 2013 season from the same related party, it had no way of knowing what the terms of that funding might be, and therefore it would not have been possible to seek an independent appraisal as to whether those terms were fair. This is illustrated by the fact that the key terms are materially different than for the 2012 season - level of funding, number of tranches available over two seasons, interest rate, and relative contribution by joint funders are all different. It would not be reasonable for ALF to incur the significant costs of an independent appraiser on the off chance that a) NZFL/FMEL would require funding from a third party, and b) those terms would be the same as for the loan for the 2012 year. If the Board of ALF had done so, and it transpired that the approval was not required, or the terms were materially different, it would have been rightly accused of having wasted company money; and (iii) There was no indication in 2012 from the funders that they would be prepared to provide funding for the 2013 season, and again it would be unreasonable to require ALF to incur those significant costs when the funders were not even prepared in the period leading up to the 2012 Annual Meeting to provide any indication as to whether their funding would be available for the 2013 season. If at that time the funders were certain that they would provide the loan funding, and NZFL/FMEL were certain they would take it, then the commercial response from the parties would have been to enter into a multi-year funding facility, and a waiver or shareholder approval sought at that time for that facility. The fact that was not the case evidences the intention of the parties that the funding would be limited to the 2012 season. (i) NZFL and FMEL have during the last 18 months engaged in discussions with potential third party funding providers and banks regarding the provision of working capital facilities to FMEL and other investment options. It became clear at the end of July that third party or bank funding would not be provided. ALF does not currently consider that such banking facilities represent a realistic funding alternative for the following reasons: (i) FMEL has approached a significant number of New Zealand banks seeking banking support but without success; (ii) It is noted that in recent times, developing a capability and banking relationship supportive of the funding of a high priority impending sale yard investment by NZFL has determined primary focus in this area. (j) The terms of the Loan and FMEL's decisions to enter into the Loan have been commercially negotiated by ALF's and FMEL's management (excluding Garry Bluett), on commercial and arms' length terms. Garry Bluett has not been involved in negotiating the Loan on ALF/NZFL/FMEL's behalf and he has not been afforded any favourable treatment because of his status as a Director of FMEL's parent companies. (k) The terms of the Loan are substantially similar to (or no more onerous than) terms offered by other third party debt providers. The interest rate under the Loan is 10.9%, which is referable to rates currently charged to ALF by its primary lenders. (l) A loan facility with a maximum value of $1.2 million and on substantially similar terms as the Loan was provided by Garry Bluett jointly with the same unrelated party in relation to the bobby calf business for the 2012 season. The first drawing on last year's loan was made in August 2012 and the loan was fully repaid in February 2013. NZXR granted a waiver in relation to the funding for the 2012 season. (m) It is appropriate that this waiver should be granted on the condition that all of the Directors of ALF (except Garry Bluett) provide certification, in a form acceptable to NZX Regulation, that: (i) Garry Bluett took no part in the negotiation of the Loan on behalf of ALF or FMEL; (ii) they consider that the terms and conditions of the Loan were negotiated on a commercial and arms' length basis, and reflect standard terms for such agreements; (iii) they consider that the Loan was entered into at not more than a market price, and is in the best interests of shareholders of ALF; and (iv) in entering into the Loan, neither ALF nor FMEL was influenced in its decision by the Related Party nexus between ALF, FMEL and Garry Bluett. Rules 10. Rule 9.2.1 provides that: "An Issuer shall not enter into a Material Transaction if a Related Party is, or is likely to become: (a) a direct or indirect party to the Material Transaction, or to at least one of a related series of transactions of which the Material Transaction forms part; or (b) in the case of a guarantee or other transaction of the nature referred to in paragraph (d) of the definition of Material Transaction, a direct or indirect beneficiary of such guarantee or other transaction, unless that Material Transaction is approved by an Ordinary Resolution of the Issuer." 11. Rule 9.2.2 provides that: "For the purposes of Rule 9.2.1, "Material Transaction" means a transaction or a related series of transactions whereby an Issuer: ... (c) borrows, lends, pays, or receives, money, or incurs an obligation, of an amount in excess of 10% of the Average Market Capitalisation of the Issuer; or" 12. Rule 9.2.3 provides that: "For the purposes of Rule 9.2.1, "Related Party" means a person who is at the time of a Material Transaction, or was at any time within six months before a Material Transaction: (a) a Director or executive officer of the Issuer or any of its Subsidiaries; or" Decision 13. On the basis that the information provided to NZXR is full and accurate in all material respects, NZXR grants ALF a waiver from Rule 9.2.1, so that FMEL may enter into the Loan without the prior approval of ALF's shareholders. 14. The waiver in paragraph 13 is granted on the following conditions: (a) the Directors of ALF (excluding Garry Bluett) certify, at the time the Loan is entered into, in a form acceptable to NZXR, that: (i) Garry Bluett took no part in the negotiation of the Loan on behalf of ALF or FMEL; (ii) the terms and conditions of the Loan were negotiated on a commercial and arms' length basis, and reflect standard terms for such agreements; (iii) the Loan was entered into at not more than a market price, and is in the best interests of shareholders of ALF; and (iv) neither ALF nor FMEL was influenced in its decision to enter into the Loan by the relationship between ALF, FMEL and Garry Bluett; and (b) ALF obtains approval from its shareholders for the drawdown by FMEL of funds under the Loan for the 2014 season in accordance with Rule 9.2.1 before FMEL makes any drawdowns under the Loan for the 2014 season. Reasons 15. In coming to this decision, NZXR has considered the following matters: ? (a) The policy behind Rule 9.2.1 is to prevent transactions where there is undue influence by a Related Party on an Issuer's decision to undertake a transaction favourable to that Related Party; (b) The terms of the Loan are substantially similar to (and no more onerous than) the terms of arrangements between ALF and NZFL and third party debt providers; (c) The 2013 season funding is urgently required for FMEL's operation of the 2013 bobby calf business, as the 2013 bobby calf season has already started. The bobby calf business is a significant contributor to the profits of FMEL and NZFL, and make up almost the sole source of revenue for ALF. Without the Loan, the bobby calf business would be unable to operate for the 2013-14 seasons, which could result in ALF becoming insolvent, which would not be in the best interests of shareholders; (d) NZXR expects Issuers to, where possible, seek approval from shareholders for transactions that require approval under Rule 9.2.1, particularly where the transaction occurs on a routine or seasonal basis. NZXR is disappointed that ALF did not plan ahead to ensure that shareholder approval to the Loan could have been obtained. However, NZXR acknowledges the difficulties set out in paragraph 9(h) that ALF faced in planning to obtain shareholder approval for the 2013 season funding. On balance NZXR considers that the benefits of calling a shareholders' meeting to consider entry into the Loan are outweighed by the adverse effects on the financial position of the ALF group that are likely to eventuate if FMEL's receipt of the funding is delayed; (e) The condition in paragraph 14(b) requires ALF to obtain shareholder approval for the drawdown by FMEL of funds under the Loan for the 2014 season before FMEL makes any drawdowns under the Loan for the 2014 season, which will ensure that ALF shareholders have an opportunity to consider and approve the funding arrangements for 2014; (f) The certifications provided by ALF's Directors (excluding Garry Bluett) provide shareholders with comfort that the Loan is on commercial and arms' length terms, is in the best interests of ALF and its shareholders, and was not influenced by Garry Bluett; and (g) There is precedent for this decision. Confidentiality 16. ALF requests that this application and any decision are kept confidential until the Loan has been finalised and, if required, announced to the market. 17. In accordance with Footnote 1 to Rule 1.11.2, NZXR grants ALF's request. ENDS End CA:00240126 For:ALF Type:WAV/RULE Time:2013-08-23 12:14:48
- Forums
- NZX - By Stock
- Ann: WAV/RULE: ALF: ALF - Application for a Waive
Ann: WAV/RULE: ALF: ALF - Application for a Waive
Featured News
Add ALF (NZSX) to my watchlist