AFG 4.45% $2.58 australian finance group ltd

allco in bankers hands

  1. 11,407 Posts.
    Allco in bankers' hands

    26/02/2008 4:14:00 AM.

    No matter how you describe it and what form of words the management uses, All Finance Group is a basket case which is in the hands of its banks that control its future.

    For that matter the interim accounts produced yesterday finally after 10 days of delays shows the company's notional financial position at the end of December and nothing more.

    Because it has $250 million and perhaps another $900 million due over the next few months, and it clearly can't afford to either repay or renegotiate these facilities, AFG is effectively broke.

    And the market recognised that by marking down the price of AFG shares 63%: they closed at $1.11, which was also 92% under the all time high of $12.23 this time a year ago.

    AFG CEO, David Clarke and CFO, Tim Dodd conducted yesterday's briefings: the executive chairman and driving force, David Coe was nowhere to be seen and certainly didn't have his name on any of the statements and comments in yesterday's releases.

    AFG now joins the likes of Centro and MFS in the corporate workout club as the banks and executives and consultants congregate to see how the businesses can be restructured (if is more likely) and how much debt can be repaid, value assets to be sold, and if anything in the rumps of the dismembered businesses can be refloated to raise more money for lenders.

    Remember that in the case of each company it is the banks and other financiers who are talking about extracting value for themselves: shareholders are last on the list.

    Allco revealed that it has $250 million due on May 1 and a further $900 million that it could be called on to repay within 90 days.

    According to the interim accounts which were finally signed by the independent directors, AFG had $591 million in cash on December 31.

    The shares had been suspended since February 9 as the company twice postponed its earnings announcement because the independent directors would not sign them.

    A year ago Allco had a market value of $5 billion and Executive Chairman David Coe was leading a buyout group in an $11.1 billion bid for Qantas, which failed eventually.

    Lenders for the $900 million loan are Dutch bank, ABN Amro, the Commonwealth Bank of Australia and Westpac.

    ABN and Westpac are the lenders for the $250 million.

    The company said in a statement that it will continue to focus on managing its existing real estate, aviation, shipping and rail assets, while it's in talks to sell on-core assets.

    Now it should be remembered that companies in trouble always sell non-core assets, but fail to realise that the best assets are the ones which can raise the most money for the banks who are owned the money.

    Allco said yesterday it had already agreed to sell its stake in the Consolidated Edison portfolio of power stations in the US at a loss of $72.1 million to Industry Funds Management, its partner in the proposed deal.

    That's the big sign that Allco is hobbled and can't do anything but contract.

    The company reported a 14% fall in net income to $84.7 million in the six months to the end of December but it didn't pay a first-half dividend, and said it's unlikely to pay one in the second half.

    So why the problems.

    Well, according to CEO, David Clarke: "The rapid and unanticipated dislocation in global credit markets and associated volatility in equity markets has had a significant impact on the operations, financial position and outlook for Allco. We are now developing and will be implementing a focused and aggressive business restructure.''

    But seeing the likes of Macquarie Group and Babcock and Brown are still operating without the banks looking over their shoulders and controlling every move like they are at Allco, there must have been something else.

    You won't find it looking at what AFG issued yesterday. The sense of denial remains powerful around the company. It had too much debt, too many people who thought they were clever and smarter than the market and an ability to ignore the obvious message coming from the US and the way the subprime mortgage crisis and credit freeze were changing the rules of doing business for companies whose stock in trade was cheap capital and good tax lawyers.

    At best Allco has bought itself a bit of time: but the reality is that the banks are now in control.

    Allco's key asset is $1.3 billion of goodwill booked on acquisitions that were done above net asset backing. Is this a realistic figure, or an invention designed to keep the banks and receivers at bay?

    Goodwill and Allco do not sit easily together.

    This goodwill was generated in the good times, when Allco was buying and selling assets with cheap money and rising values. Now the rules of the game have changed.

    The figures released yesterday are not fully audited. Allco's auditor, KPMG warns that Allco ''is dependent on the ongoing debt facilities provided by its financiers to continue to operate as a going concern''. Allco is attempting to renegotiate ''terms, conditions and maturity'', and while Allco's directors anticipate a successful outcome, the outcome is uncertain - and the very existence of that uncertainty ''may cast significant doubt about the group's ability to continue as a going concern''.

    In other words, without the support of its banks, Allco is a dead duck, and billions of dollars in debt will have to be wiped out
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