AFG 4.40% $2.39 australian finance group ltd

rescue effort props up allco

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    Rescue effort props up Allco

    March 6, 2008

    THE founder of Allco Finance Group, David Coe, has received much-needed support from the firm's other architect, John Kinghorn.

    Mr Kinghorn has spent generously on Allco shares, providing a fillip for the ailing company's share price.

    Meanwhile, uncertainty remains about a $110 million margin loan National Australia Bank provided to Allco Principals Trust, which has shares worth only $17.7 million in security against it.

    Mr Kinghorn, who is also well known as the founder of the RAMS Home Loan Group that collapsed last year, weighed into the market on Tuesday, buying close to 11.4 million Allco shares at $1.10 a share , or almost three times the 39c they closed at on Tuesday.

    Fuelled by the news of Mr Kinghorn upping his stake in the company from 6.8 per cent to 9.75 per cent, Allco's shares jumped 33 per cent to close at 52c yesterday.

    Mr Kinghorn has previously shown confidence in Allco's survival, but lost out badly on previous purchases at higher prices. He has disclosed spending at least $57 million building his stake in the company, although on yesterday's closing price he had a minimum $43 million paper loss on that investment.

    Mr Kinghorn's move put a floor under a share price that has fallen precipitously from a high last year of $13.23, as investors sold on concerns about the hefty debt burdens facing the company and the poor performance of its managed funds.

    Also yesterday, Mr Kinghorn revealed he had moved to build his stake in the Allco-managed Record Realty to 19.8 per cent, spending $3.5 million, or an average 22.5c a share. Record closed at 16.5c yesterday, down 2.5c.

    Allco continues to hold talks with its bankers about its survival, with rhetoric from within the company moving to include the possibility of sales of its supposedly core assets in its aviation, rail and real estate businesses.

    The banks are still working on a base business case for refinancing Allco that does not include such sales, but it is understood Mr Coe sees the sales as potentially releasing Allco from its debt burdens more quickly.

    The move to put core assets on the block also reflects an acknowledgement that sales of its financial assets such as Mobius and Gateway will be difficult, if not impossible, in the current environment in which financial assets are seen as toxic.
 
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