Nab In Talks With Allco On Execs' Loan

Sydney Morning Herald

Tuesday February 19, 2008

Danny John and Scott Rochfort

A $110 million bank loan advanced to senior executives of Allco Finance Group has become embroiled in the negotiations to reach a cash-for-assets deal to save the stricken investment company.

This was as Allco again postponed the release of its long-awaited half-year results for a second time in three days.

The $110 million loan, made by National Australia Bank as a margin facility to allow Allco's executives to buy shares in AFG, is secured against AFG stock held by Allco Principal Investments, a privately owned offshoot.

But the ability of API to finance the loan has been dependent on the value of Allco's shares, which have plunged from a high of $13.23 a year ago to the $3.05 at which they were suspended a week ago as the full extent of AFG's debt troubles emerged.

NAB has since become immersed in the complex series of talks between AFG and several suitors, including lead bidder Macquarie Group, to construct a deal whereby Allco could sell some of its infrastructure, aviation, shipping and rail leasing assets in exchange for cash.

This would allow it to pay down part of its $6.1 billion debt, which includes a commitment to refinance the most pressing element of $250 million by May.

Such a move would help underpin the AFG share price when the trading suspension is finally lifted. Allco is also said to be considering an alternative plan that would involve a swap of its equity for cash to cut its debts.

NAB is believed to be actively involved in discussions that are aimed at avoiding a "margin call" on the loan which would require API to put up further security or sell the shares to which the facility is tied.

So far, none of the stock has been sold, even though the share price has come under further sustained pressure following NAB's statement to the ASX on January 24 that it had provided the margin loan facility to API.

The bank is understood to be anxious not to add to the overall group's plight by forcing a share sale along the same lines of the margin call by other lenders last month which sent the stock price plunging.

Allco informed the ASX in a short statement yesterday morning just before scheduled presentations to institutional shareholders and analysts that it could not release its half yearly results as scheduled last Thursday.

The beleaguered company gave no reason for the latest delay although sources indicated the talks on the rescue plan lay at the heart of the decision.

Concerns over Allco's cash problems spread to several of its listed vehicles, whose shares continue to trade.

Allco Max Securities slumped to a new low on fears the "geared lending vehicle", which has a loan book of $903 million, could be having problems servicing its debt.

Shares slumped 1.5c to 17c yesterday, and have now fallen 82 per cent in the past 12 months.

Shares in Record Realty, which cancelled a dividend last week, fell 7c to 53c.

© 2008 Sydney Morning Herald

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