21 Nov 2009

PGG Wrightson plans rights issue to repay debt

7:31 am on 21 November 2009

Rural services firm PGG Wrightson is seeking to raise $181 million from shareholders to help repay debt.

The company plans to issue just over 400 million shares - nine shares for every eight currently held - at 45c each.

The proposal will see the China-based Agria increase its stake in PGG Wrightson from 11% to 19%, at the expense of the other major shareholders, Rural Portfolio Investments and Pyne Gould Corporation.

Rural Portfolio Investments, half owned by Craig Norgate, who is a director of PGG Wrightson, will sell more than half its entitlement to Agria.

Rural Portfolio Investments has a 27.5% stake at present and Mr Norgate says while he will participate in the rights issue, he cannot afford to maintain his stake at that level.

Pyne Gould Corporation's 21% stake will be reduced to just over 18%.

Agria will also inject a further $32.5 million into the company's finance arm to bolster its financial position.

The company is struggling under $473 million worth of debt of which $200 million is due at the end of March 2010.

PGG Wrightson says the money raised, along with asset sales and cost cutting initiatives, will reduce its debt by $277 million over the next year.

The offer is underwritten by investment banks UBS New Zealand and First New Zealand Capital, meaning PGG Wrightson will get all the money even if shareholders don't take up their full entitlement.

Brian Gaynor, an investment analyst at Milford Asset Management, says Agria company appears to be taking a long-term view of PGG Wrightson.

Mr Gaynor says PGG Wrightson will be relieved to have found a willing investor and there will be few concerns about New Zealand dividends flowing overseas.

Agria has so far remained quiet on its reasons for increasing its investment, but PGG Wrightson believes Agria also wants to link the company to a large seed development centre in China, Mr Gaynor says.

Meanwhile, PGG Wrightson says its revenues have plunged 40% in the first four months of the new trading year compared with the same period a year ago. As a result, it now expects its full year earnings to fall 9% to $73.4 million.