PGW - PGG Wrightson

[Joshuatree]

Snoopy i was going to send you a "conversational mirror" for xmas but its clear you don't need one ( Ive got floating anchors on special); you are making it cool and ok to talk to oneself.
Int to watch your combat missions with The red baron AKA Agrarinvestor(looks like a draw so far and tiger moths can be full of holes and still fly(but not holes full of fools) and i wish you both seasons greetings in the air and on the ground, may you both land safely

[Agrarinvestor]

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

No. But i think it is not important. And i don't beleave that Mr. Lai has difficulties to arrange new loans. The Agria/PGW story is an investment succes for Agria, and off course you are right it is not
free of charge. IMO it is not only the competence and the intangible assets like seeds, it is more than that. It is reputation for Agria in China and can be important in the future if Agria will export
seeds worldwide.
I am still holding 11.000 shares, and it is possible that i buy some shares if the half year results show a strong improvement in China. But i am afraid that the share price will double if the results are out.
In the meantime i am more concentrated on my chinese fertilizer investment in CGA. I beleave it would be an investment than can fulfill your enhanced requirements in cash and low debt. It has a P/E of 2.

[Snoopy]

<Woirking for current loans declared in Annual Report>

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?

To (partially) answer my question....

The interest bill based on current loans at declared interest rates is a future projection

The underlying finance & interest figure calculated from the FY2013 balance sheets of PGW and Agria is a past reflection.

If the underlying bank loans of Agria have not changed over the past year, then the interest bill from one year should approximate that of the next. If however interest rates payable have decreased during the year (it seems they have) and if some underlying debt has been repaid (it has in Agria Asia at least) then you would expect the forecast annual interest bill will be less than the one you have just paid. I don't think this is the full story though. The extra difference may result from the change in 'finance charge' (the 'finance' bit of finance and interest). But I will need to do a bit more sleuthing to confirm that.

SNOOPY

[Snoopy]

No. But i think it is not important. And i don't beleave that Mr. Lai has difficulties to arrange new loans. The Agria/PGW story is an investment succes for Agria, and off course you are right it is not free of charge.

What will swing things for Agria as the preferred investment vehicle over PGW is when the income stream from PGW dividends consistently covers the cost of Agria's borrowings. This hasn't happened so far, but could it happen this year? PGW released EBITDA earnings guidance of $NZ52m-$NZ56m at this years AGM. Compare this to the operating EBITDA of $NZ46m for FY2013. We are looking at a 'best case' improvement of $NZ10m, say $NZ7.2m after tax. Forbar had adjusted operating net profit after tax at $NZ24.6m for FY2013. So perhaps we are looking at a NPAT for PGW of up to $NZ24.6m +$NZ7.2m = $NZ31.8m for FY2014?

$31.8m/754.8m= 4.2cps, a little bit up on the 3.2cps that Agria took out from PGW in FY2013.

50.22% of those forecast NPAT earnings is $NZ16m. This is what is available to Agria as a dividend if all after tax profits are paid out. Convert that to USD using $NZ1 =$0.8USD and I get $US12.8m. Last year the underlying Agria interest was $US9.7m. So if PGW has a good year as forecast, paying the interest bill looks doable for Agria. I am still unclear exactly how much rejigging of Agria's borrowings will reduce their underlying interest bill this year, and not even Agria can know this until the remaining US bank loans to be renegotiated are repriced.

The elephant in the room will be if New Hope want their money back, as they are entitled to recover their initial investment in Agria Asia this year. The amount New Hope put into Agria Asia in 2011 was $US20m. If New Hope demand that Agria repurchase their shareholding in Agria Asia then the Agria parent listed in the USA is in trouble. When Agria Asia took control of PGG Wrightson the price Agria Asia paid was 60c per share. Those same shares are now worth 40c. If as the Chairman of New Hope had a clause in your share subscription arrangement which forced Mr Lai to buy back your share of PGW at the equivalent 60c, would you do it?

SNOOPY

[Agrarinvestor]

What will swing things for Agria as the preferred investment vehicle over PGW is when the income stream from PGW dividends consistently covers the cost of Agria's borrowings. This hasn't happened so far, but could it happen this year? PGW released EBITDA earnings guidance of $NZ52m-$NZ56m at this years AGM. Compare this to the operating EBITDA of $NZ46m for FY2013. We are looking at a 'best case' improvement of $NZ10m, say $NZ7.2m after tax. Forbar had adjusted operating net profit after tax at $NZ24.6m for FY2013. So perhaps we are looking at a NPAT for PGW of up to $NZ24.6m +$NZ7.2m = $NZ31.8m for FY2014?

$31.8m/754.8m= 4.2cps, a little bit up on the 3.2cps that Agria took out from PGW in FY2013.

50.22% of those forecast NPAT earnings is $NZ16m. This is what is available to Agria as a dividend if all after tax profits are paid out. Convert that to USD using $NZ1 =$0.8USD and I get $US12.8m. Last year the underlying Agria interest was $US9.7m. So if PGW has a good year as forecast, paying the interest bill looks doable for Agria. I am still unclear exactly how much rejigging of Agria's borrowings will reduce their underlying interest bill this year, and not even Agria can know this until the remaining US bank loans to be renegotiated are repriced.

The elephant in the room will be if New Hope want their money back, as they are entitled to recover their initial investment in Agria Asia this year. The amount New Hope put into Agria Asia in 2011 was $US20m. If New Hope demand that Agria repurchase their shareholding in Agria Asia then the Agria parent listed in the USA is in trouble. When Agria Asia took control of PGG Wrightson the price Agria Asia paid was 60c per share. Those same shares are now worth 40c. If as the Chairman of New Hope had a clause in your share subscription arrangement which forced Mr Lai to buy back your share of PGW at the equivalent 60c, would you do it?

SNOOPY

Hi Snoopy,

>>price Agria Asia paid was 60c per share<< and >>Those same shares are now worth 40c.<<
We have talked about that a few times. It is normal that the share price of an object like PGW falls after a particual takeover. PGW shareholders can only hope for a dividend, thats all. Therefore the development
of the share price is limited. The discrepance of 20 cent to the current shareprice is a bargain, as Agria has full control over PGW.

And New Hope is a long term investor. They are not a greedy US hedgefonds that wants his return of investment in a short time. In an emergency situation i beleave Adam Lai can pay the amount out of his pocket.

best regards

Ralf

[Master98]

seems like pgw will announce a pre-xmas trading update?

[Snoopy]

Seems like pgw will announce a pre-xmas trading update?

Half year doesn't end until 31st December. Why do you expect a pre-xmas trading update Master? They didn't do it last year.

SNOOPY

[Master98]

Half year doesn't end until 31st December. Why do you expect a pre-xmas trading update Master? They didn't do it last year.

SNOOPY

they did it before and share trading volume quite high recently and price is firm.

[winner69]

As snapiti keeps reminding us its UP UP AND AWAY on the farm

http://www.interest.co.nz/business/6...gh-according-l

[Agrarinvestor]

Big volume on Agria today:

Prev Close:	1.49
Open:	1.51
Bid:	1.58 x 2000
Ask:	1.60 x 5600
1y Target Est:	2.00
Beta:	0.57
Next Earnings Date:	N/A

Day's Range:	1.45 - 1.64
52wk Range:	0.69 - 1.74
Volume:	786,588
Avg Vol (3m):	137,78