PGW - PGG Wrightson

[Snoopy]

I am enjoying the share trajectory of REL on the unlisted market.

Percy highlights another rural winner. But would you top up on REL at today's prices, and given the liquidity could you do it? PGW has quite good liquidity for something outside the NZX 50. I wonder how close PGW is to getting back into the NZX50? Maybe selling down to those sucker index buyers is a medium term strategy for PGW shareholders?

SNOOPY

[percy]

Yes I would buy at today's price.
22,818 for sale at $4.30, however I would expect they will go through at $4.20.
Liquidity has been surprisingly good during the past year.Nothing like PGW,however, for an investor like me who doesn't mind if the market was closed for 5 years,it is not an issue.!!! lol.

[TimmyTP]

Just stumbled on this and thought it might be of some relevance to ppl on this thread.

Enjoy - I am not invested in PGW, never studied them so no opinion to offer, just thought the article might be of use.

[iceman]

Agria makes a full and early repayment of its loan to LIC !

http://www.nbr.co.nz/article/agria-r...ment-dc-149556

[Agrarinvestor]

Agria makes a full and early repayment of its loan to LIC !

http://www.nbr.co.nz/article/agria-r...ment-dc-149556

Yeah, would like to hear Snoopy's comments on that.

[Snoopy]

Agria makes a full and early repayment of its loan to LIC !

http://www.nbr.co.nz/article/agria-r...ment-dc-149556

There is some interesting text in the Agria 20F filing about their New Zealand based loans. I quote from page 57:

------

Debt owed by our subsidiary, Agria Asia Investments:
· acquisition debt denominated in New Zealand dollars of NZ$13.8 million ($10.7 million) that matures on February 26, 2014 provided by a bank;
· acquisition debt denominated in New Zealand dollars of NZ$5.0 million ($3.9 million) that matures on March 5, 2014 provided by Livestock Improvement Company. If the bank which provided the acquisition debt referred to above extends the NZ$13.8 million acquisition debt facility, Livestock Improvement Company is restricted in its ability to enforce security in the event of them not being repaid on March 5, 2014;

-------

I see that as quite a big incentive for LIC to get their loan repaid early (as happened). If they did not and the New Zealand bank that is bankrolling Agria extended that bank loan, it looks like LIC may have had some difficulty getting their loan capital back.

SNOOPY

PS I notice the same clause was highlighted in the previous loan arrangement with LIC listed in the Agria FY2012 20F filing. That was how they got out of paying all the original LIC loan back last year and kept things legitimate.

[Snoopy]

Do you appreciate that Lai has given dividend guarantees to the Chinese government vehicle New Hope? IOW the Chinese government is planning on taking cash out of Agria Asia, not putting more money into it.

Maybe the cashflow arrangement with New Hope is not as onerous as I imagined? I have been reading the 6K form filed with the SEC in relation to the involvement of New Hope in the PGW takeover. I came across this in section 8.2

---------------

8.2 Dividend Policy
The dividend policy adopted by the Board of the Company will apply the following principles:
(a) while debt remains in the Company, the intention will be to focus capital flows on servicing and repayment of debt; and
(b) when all the debt of the Company has been repaid, it is intended (unless all the Shareholders agree otherwise) that the balance of net distributable cash flows less any amounts anticipated to be incurred in the operating of the Company in the next twelve months will be distributed as dividends to the Shareholders.

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My reading of that is that while Agria Asia has debt then all spare cashflow will be put into paying off that debt. But once the debt is paid off then New Hope will expect any spare cashflows as dividends. I need to get to grips with how much of Agria's huge debt mountain relates to Agria Asia!

Do you appreciate that New Hope can force Agria to repurchase their share of Agria Asia in the next couple of years at an undisclosed price I would guess is cost? That could mean more huge losses for Agria.

During FY2014 the New Hope guarantee clause comes to a head. Will New Hope demand their money back out of Agria Asia?

SNOOPY

[Agrarinvestor]

Maybe the cashflow arrangement with New Hope is not as onerous as I imagined? I have been reading the 6K form filed with the SEC in relation to the involvement of New Hope in the PGW takeover. I came across this in section 8.2

---------------

8.2 Dividend Policy
The dividend policy adopted by the Board of the Company will apply the following principles:
(a) while debt remains in the Company, the intention will be to focus capital flows on servicing and repayment of debt; and
(b) when all the debt of the Company has been repaid, it is intended (unless all the Shareholders agree otherwise) that the balance of net distributable cash flows less any amounts anticipated to be incurred in the operating of the Company in the next twelve months will be distributed as dividends to the Shareholders.

----------

My reading of that is that while Agria Asia has debt then all spare cashflow will be put into paying off that debt. But once the debt is paid off then New Hope will expect any spare cashflows as dividends. I need to get to grips with how much of Agria's huge debt mountain relates to Agria Asia!



During FY2014 the New Hope guarantee clause comes to a head. Will New Hope demand their money back out of Agria Asia?

SNOOPY

Dear Snoopy,

i have expected such an answer from you. You are still very obsessed with Agria is going bankrupt!
Fact is Agria has done very well during the past 2 years. You must consider David has taken over
Goliath.

june 2013 June 2012 June 2011 Total Liabilities 509,283 595,297 1,021,720 Goodwill 3,286 140,541 138,151 Intangible Assets 7,124 58,517 61,644 Net Tangible Assets 76,836 28,986 22,935

With Net Tangible Assets = Market Capitalisation, Agria is fair valued at the Moment.
If you put in mind how fast their domestic seeds market is developing, and their
succes with reducing debt and improving the quality of their book value, it is
hard to follow your conclusion.
If you compare market cap of Monsanto and NTA ratio, with Agria you must
admit that Agria is still cheap.

[Snoopy]

Dear Snoopy,

I have expected such an answer from you. You are still very obsessed with Agria is going bankrupt!
Fact is Agria has done very well during the past 2 years. You must consider David has taken over
Goliath.

june 2013 June 2012 June 2011 Total Liabilities 509,283 595,297 1,021,720 Goodwill 3,286 140,541 138,151 Intangible Assets 7,124 58,517 61,644 Net Tangible Assets 76,836 28,986 22,935

With Net Tangible Assets = Market Capitalisation, Agria is fair valued at the Moment.
If you put in mind how fast their domestic seeds market is developing, and their
succes with reducing debt and improving the quality of their book value, it is
hard to follow your conclusion.
If you compare market cap of Monsanto and NTA ratio, with Agria you must
admit that Agria is still cheap.

Agrainvestor, I have not double checked your tabulated figures because I am sure you are right. Yes I agree that the consolidated Agria has reduced its debt. But that is entirely due to the controlled PGW, 50.22% owned by Agria Asia, reducing its own underlying debt.

The real questions to me are what has happened to the debt of the privately held "Agria Asia", the jointly owned subsidiary (with New Hope and Ngai Tahu) that controls 50.22% of PGW? This question is important because it determines what happens to those dividends from PGW that the parent Agria may eventually receive.

The other question is what has happened to the debt of the underlying Agria, the public entity listed in the USA that you hold shares in? I won't go through the indignity of updating the Altmann Z statistic for that just yet. But I believe the capital position for the US Agria is very serious. But that I mean the underlying earnings do not cover their borrowing costs.

SNOOPY

[Snoopy]

Genuine PRC male professional dancing requires a combination of skills: Strength, discipline and timing. Alan Lai will need all of these attributes if he is to pull Agria back from the brink.

I have been running some numbers over the standalone Agria bank loans to see how precisely those dance shoes will have to move.

We are told that Agria is being charged interest at 4.5% above the base rate. For his US loans I am assuming this equates to 6.5%. The US domiciled loans mature between January 11th 2013 and April 19th 2013 and total US$58.2m. That gives an interest bill of $US3.78m.

The New Zealand loans mature(d) over October 2012. The larger bank loan ($US19.7m) has already been renewed, and the smaller loan linked to LIC ($US7.9m) matures at the end of the month (Loans converted assuming $1NZ= 80cUS). I am assuming the NZ interest rates are higher say 8.5%. I calculate the total NZ domiciled interest bill to be $US2.35m.

This gives a total annual interest bill of $US6.3m.

Now running a check on my assumptions. Interest and finance expenses from the consolidated Agria revenue statement are declared as $US18.660m.

From the PGW FY2012 Annual Report, interest and finance expenses are $NZ15.469m. Multiply that by 0.8 and I get $US12.375m. So the underlying Agria standalone finance expenses are:

$US18.660m - $US12.375m = $US6.285m

That is in close agreement with my estimate of Agria's interest bill above, so I conclude that I am in the ballpark with my figures.

Now the question arises, what size of dividend will Agria need from PGW to pay this? If we take $US6.285m to be equivalent to $NZ7.856m, and we know that there are 754.849m PGW shares on issue, this means the bankable dividend needed is.

$NZ7.856m/754.849m= 1c/share.

Of course Agria only controls half of PGW. So if we back out the 'non controlling interest' the dividend will need to be 2c per share. That definitely looks doable if PGW performs as forecast over FY2013, even if it does assume PGW will continue to go well ($NPAT25m for PGW with a 100% payout ratio) But you also need to factor in the cost of the corporate structure of Agria before Agria shareholders make any headway above their operational costs. Thus even a 3c share dividend from PGW will see Agria only just cover their costs. It really is knife edge stuff for Alan Lai.

We are told that Agria is being charged a 4.2% weighted average interest rate for its US and Chinese loans. A significant tranche of US domiciled loans mature between January 6th 2014 and April 21st 2014 and total US$25.8m (p57 FY2013 20F filing) . We must add to this a partially drawn trade facility in RMB, equivalent to a US dollar amount of $US2.6m that matures on 31st March 2014. Lastly there is a US bank loan of $US32m that matures on 29-05-2018. (I must say hats off to Lai for pulling that last one over the last year, a great dance move).

That gives an implied interest bill of $US2.53m.

Now we move onto the New Zealand based loans which I believe are effectively held by "Agria Asia".

The LIC loan has been repaid early. That just leaves the bank loan, originally taken out via "ANZ National" in New Zealand. This loan matures on 26th February 2014 and is for $NZ13.8m ($US10.7m). I shall assume the interest rate on this is somewhat in line with what PGW itself might be paying, around 7%. So this gives an implied interest bill of $US1.022m.

This gives a total annual interest bill for Agria, with PGW separated out, of $US3.57m.

Now running a check on my assumptions. Interest and finance expenses from the consolidated Agria revenue statement (p3 20F report) are declared as $US14.738m.

From the PGW FY2013 Annual Report p58, interest and finance expenses are $NZ6.316m. Multiply that by 0.8 and I get $US5.053m. So the underlying Agria standalone finance expenses are:

$US14.732m - $US5.053m = $US9.679m

That is quite a variation compared with my estimate of Agria's interest bill above. So I need to check out the reason for such a discrepancy. Any thoughts?

SNOOPY