Hanover Finance investors are unlikely to recoup the full amount of their investment if they accept a $400 million offer from rural company Allied Farmers, according to an independent expert report.
The report by Grant Samuel, commissioned by Hanover to review the merits of the deal, says the debt repayment programme is foundering and receivership looks increasingly likely if it continues down this path.
The 88-page report also downplayed the chance of a rival bid, and it has been reported that Guinness Peat Group was interested in Hanover but has walked away.
Hanover chairman David Henry says the planned offer to swap debt for shares in Allied Farmers is the best deal going.
Hanover owes $554 million and recently told its 16,500 investors they would only get 70 cents of every dollar invested. Under the Allied Farmers proposal, investors are being promised 78 cents of value for every dollar.
The Grant Samuel report says assuming the new Allied Farmers shares are issued at 35c, they would have to increase to 49c before secured depositors got all their money back. Secured stockholders would not recoup their investments until the price hit 42c.
The report added it is likely that many investors will sell their new shares, causing the price to fall.
Kapiti-Based stockbroker Chris Lee, who has just under $100,000 invested in Hanover, says many investors will be looking to get out. He says the deal's success will come down to whether Allied Farmers will be better at getting borrowers to repay loans than Hanover.
The report also says though the transfer of Hanovers's good loans, which make up about 20% of its book, to Allied's farmers finance arm will help it get a credit rating, that is by no means certain.
Allied Finance need a credit rating in order to participate in the Crown's retail deposit guarrantee scheme. Main trustee Guardian Trust is urging investors to take independent advice and to carefully consider the proposal and its consequences.
In particular, it highlights the impact of those who might sell their shares, and the increasing possiblity of Hanover going into recievership.
The Shareholders' Association says it will not comment on the report or anything to do with the deal until at least 400 Hanover investors join its organisation.