Struggling financial investors, Allco Finance Group is facing a loss of more than $1.5 billion in the 2008 financial year because of impending write-downs and impairments.
The news of the impending loss was contained in a statement to the ASX yesterday and came on the same day as leading bank, Westpac reported a cash profit of more than $1.8 billion, which puts the huge loss of the once high flying Allco in some perspective.
Like it or not Westpac is a fairly static, boring investment for some investors. The franked dividends are nice, but a 10% rise in cash earnings is not the sort of returns that people who chased Allco shares last year, would have been normally interested in.
But after the crash from December-January onwards, the certainty of Westpac’s steadiness has suddenly got great appeal for investors, even if it is a lender to Allco.
Allco (AFG) said yesterday it had reached an agreement with financiers to extend the maturity of a $250 million loan facility to May 30, from May 1, and then confessed up to the huge loss.
Allco shares fell 14% to 90c at the close yesterday, but there are signs it may live, with a change of directors and managers, it would seem..
The company’s bankers include ABN Amro Holding NV, Commonwealth Bank of Australia and Westpac Banking Corp and they agreed to extend the deadline on $250 million of debt by a month to May 30.
That’s effectively the third extension, so it seems the bankers are sort of happy.
Allco said yesterday it repaid $67.5 million to lenders, leaving a further $946.5 million in outstanding loans due in September of next year.
The bankers set a May 30 deadline for their examination of Allco’s plan to sell assets and focus its business on a portfolio of ships, aircraft and railway holdings.
On Wednesday Centro Properties Group was given seven days’ extension on its plans to renegotiate a deal with its lenders on some of its huge debts.Centro was making noises yesterday about how its prospects were looking up.
Allco has a market cap of around $390 million, about a quarter of its 2008 loss.
The shares have been battered by worries about its businesses, its financial health and that of some of the principals behind the company (this doesn’t work) which has tried to emulate the likes of Macquarie Group and Babcock And Brown in its business model.
There were a number of margin calls on directors’ stock over concern the company’s structure was too complicated and worries that it would have difficulty repaying debt after the credit crunch hit and funding vanished for all but the most creditworthy companies.
Allco said yesterday it had agreed to sell assets to repay at least $400 million by September 2009.
Allco’s Mobius mortgage unit (which had very high levels of defaults) stopped accepting new home loans in February as part of a plan to sell businesses. Allco has also put its wind-energy business up for sale, and its Record Realty Trust funds management business is selling assets.
Allco’s loss of more than $1.5 billion this year will be due to it being forced to write off the goodwill on its books as assets.
In its half-year report in February, the accounts included assets such as $1.3 billion in goodwill and $176 million in intangible assets for management rights.
At the time the auditor, KPMG, warned that there was material impairment of these assets, but did not put a figure on the possible write downs.
Now, according to yesterday’s statement, it appears the goodwill and the management rights will be written off entirely.
This is what the statement yesterday said:
"In the Directors’ Report for the six months ended 31 December 2007, it was noted that the assets of the Group included an amount of $1,301 million in respect of goodwill and $176 million in respect of intangible management rights arising from acquisitions the Group had made since 1 July 2006.
"Further, it was noted that while it was difficult to quantify at that point, it was likely that these goodwill and intangible management rights balances had suffered material impairment.
"Whilst the Board is continuing to assess the appropriate carrying values of these items, it can advise that the write-down of goodwill and impairment of the management rights will give rise to a significant loss.
"These write-downs and impairments, together with anticipated restructuring costs and the potential sale of assets at less than carrying values, may result in a loss in excess of $1.5 billion for the company for the year ending 30 June 2008.
"The Board will make public the key elements of its restructuring plan including an indication of the earnings profile of the restructured business of Allco focusing on its aviation, shipping, rail and associated funds management activity, and the restructured senior debt facility once agreement has been reached with the senior lending syndicate."
"Whilst the banks continue to engage with Allco in constructive negotiations, unless and until formal documentation is signed, there can be no assurance that the negotiations will be able to be concluded successfully.
"Given Allco’s focus on preserving capital and liquidity and significantly reducing its borrowings, Allco does not envisage paying a dividend in the foreseeable future," the statement to the ASX said.
Realistic, yes, but not before time. It makes the steadiness of major banks like Westpac, for all its faults, look like an oasis of earnings and dividend income.
But they did lend money to Allco, just as the Nationa
