ALF
25/07/2012 12:13
WAV/RULE
REL: 1213 HRS Allied Farmers Limited
WAV/RULE: ALF: ALF - Waiver from NZSX Listing Rule 9.2.1
NZX Market Supervision Decision
Allied Farmers Limited
Application for Waiver from NZSX Listing Rule 9.2.1.
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 restructure earlier this year, the bobby calf business
is now operated by ALF's partly-owned subsidiary, NZ Farmers Livestock
Limited ("NZFL"). NZFL now proposes to operate the business during the 2012
season through its newly formed wholly owned subsidiary, Farmers Meat Export
Limited ("FMEL").
3. To assist with funding the bobby calf business for the 2012 season, FMEL
is seeking to enter into a working capital facility for not more than $1.2
million with Garry Bluett and Brian Train (as joint lenders) (the "Loan").
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. It is envisaged that the Loan will include the following principal terms:
(a) Security by way of a charge over the product inventories. No other
securities or guarantees from ALF or any group companies;
(b) Interest of 12% per annum, payable monthly in arrears;
(c) Default interest of 17% per annum; and
(d) Repayment Date of 31 December 2012.
5. Rule 9.2.1 restricts an Issuer entering into a Material Transaction if a
Related Party is, or is likely to become, 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 of.
6. 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).
7. 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 Rules 9.2.1.
8. As at 9 July 2012, ALF's Average Market Capitalisation ("AMC") over the
previous 20 Business Days was approximately $2.5 million. As the value of the
Loan may be up to $1.2 million, this would exceed 10% of ALF's AMC, which is
likely to be approximately $250,000. 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. Entry into the Loan would therefore
require approval by an ordinary resolution of the shareholders of ALF under
Rule 9.2.1(a).
Application
9. ALF has applied to NZX Market Supervision ("NZXMS") for a waiver from Rule
9.2.1 to enable FMEL to enter into the Loan without the prior approval of
ALF's shareholders.
10. In support of its application ALF makes 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 NZX 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, NZX 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; and
iii. Broadway Industries Limited dated 12 September 2008.
(c) The funding which would be made available by the Loan is urgently
required for FMEL's operation of the 2012 bobby calf business, and any delay
in receiving such funding could significantly destroy the value of the
business and put the business at risk. FMEL is likely to need to make its
first drawing under the Loan no later than 20 July 2012;
(d) ALF does not consider that it is practical to seek the approval of
shareholders for the Loan as:
i. it expects FMEL will have to draw on the facility by 20 July 2012, which
is earlier than the earliest date ALF could reasonably arrange for a meeting
of shareholders in compliance with the Rules; and
ii. the costs associated with seeking shareholder approval for the Loan would
outweigh the benefits in the context of ALF's very low AMC;
(e) FMEL has engaged in discussions with potential third party debt providers
and banks regarding the provision of working capital facilities to FMEL. ALF
does not 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. ALF's current funders are unable to, or have decided not to, provide any
funding to ALF or its subsidiaries for this purpose;
iii. although it is possible for lending to FMEL to be secured against
insured bobby calf/veal products, the security available is not attractive 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. A significant factor giving each of Garry Bluett and Brian Train
confidence to lend to FMEL and distinguishing them from other third party
funding providers is their inherent knowledge of the risks of the business;
iv. given there are limited options to reduce the risks faced by a lender to
FMEL, ALF's and FMEL's management considers that it will take too long to
agree to a financing arrangement with any third party debt providers that
have not already declined to offer support. It is also expected that if such
arrangements were able to be agreed they would be at a higher cost to the
company than is proposed under the Loan;
(f) 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/FMEL's behalf and he has not been
afforded any favourable treatment because of his status as a Director of
FMEL's parent;
(g) 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 12%, which is referable to rates currently charged to ALF
by its primary funders;
(h) The Loan is a short term loan and is expected to be repaid by late 2012;
(i) A loan facility with a maximum value of $850,000 and on substantially
similar terms as the Loan was provided by Garry Bluett and Brian Train in
relation to the bobby calf business for the 2011 season. The first drawing on
last year's loan was made in August 2011 and the loan was fully repaid in
February 2012. Last year's loan did not require shareholder consent as the
value of the loan was below the thresholds for a Material Transaction (but
since then, the AMC of ALF has reduced);
(j) 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 NZXMS 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 entry into 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
11. 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."
12. 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"
13. 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
14. On the basis that the information provided to NZXMS is full and accurate
in all material respects, NZXMS 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.
15. The waiver in paragraph 14 is granted on the condition that the Directors
of ALF (excluding Garry Bluett) certify, in a form acceptable to NZXMS, that:
(a) Garry Bluett took no part in the negotiation of the Loan on behalf of ALF
or FMEL;
(b) the terms and conditions of the Loan were negotiated on a commercial and
arms' length basis, and reflect current market terms for such agreements;
(c) they consider that the entry into the Loan is in the best interests of
the shareholders of ALF and ALF; and
(d) neither ALF nor FMEL was influenced in its decision to enter the Loan by
the Related Party nexus between ALF, FMEL and Garry Bluett.
Reasons
16. In coming to this decision, NZXMS 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) ALF's other third party debt providers;
(c) NZXMS 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. Nevertheless, ALF now
urgently requires the funding from the Loan for the 2012 bobby calf business,
and calling a shareholders meeting to consider the entry into the Loan would
delay the receipt of such funding and would adversely affect the business;
(d) ALF has approached a number of banks and third party lenders without
success;
(e) The certifications provided by ALF's Directors (excluding Garry Bluett)
ensure that the 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
(f) There is precedent for this decision.
Confidentiality
17. ALF requests that this waiver application and any decision are kept
confidential until the Loan has been finalised and, if required, announced to
the market.
18. In accordance with Footnote 1 to Rule 1.11.2, NZXMS grants ALF's request.
ENDS.
End CA:00225277 For:ALF Type:WAV/RULE Time:2012-07-25 12:13:45
