Agribusiness investment company Australian Growth crashed and burned in June 2003, going into administration less than 12 months after listing on the stock market.
Agribusiness investment company Australian Growth crashed and burned in June 2003, going into administration less than 12 months after listing on the stock market.
Two years later, after a tortuous restructuring, the company has relisted under a new name, RuralAus Investments, and is aiming to grab a share of the booming agribusiness investment market.
RuralAus provides a rare case study of a financially distressed company emerging from a long-running administration, with its focus still on the original core business.
The key players behind the revival include Strategic Investments director Peter Kinnear and his business partner, George Gear, who is best known as a former assistant treasurer and latterly as a campaigner against the Australian Tax Office.
They teamed up with accountant and company director John Chegwidden to revive the business after plans to sell Australian Growth to NSW firm Ausforest fell over in January 2004.
If that sale had proceeded, the combined business may have been short-lived, since Ausforest itself went into receivership eight months later in September 2004.
The team leading the revival was bolstered in 2004 by PKF managing partner Ian Olson and Bell Potter head of corporate Peter Wallace.
Together they spent nearly a year negotiating with the administrator, PPB partner Simon Read, before signing a heads of agreement in January 2005 to restructure and recapitalise the failed business.
They spent a further six months putting the plan into action, raising nearly $6 million in fresh equity, before RuralAus was able to relist on the ASX.
Mr Gear, who now chairs the company, said the relisting was a great day for shareholders and growers who stood to lose everything had the company been liquidated.
Under founding chairman Anthony Short and managing director Brian Mangano – who has since joined listed pharmaceutical company Chemeq – Australian Growth raised a total of $31.7 million from investors (growers) in five forestry schemes between 1998 and 2002.
The company sailed though the 2001-02 crackdown on tax-driven investment schemes, which caused the collapse of another much bigger agribusiness manager, Australian Plantation Timber.
However, just as the agribusiness sector was starting to regain confidence, Australian Growth hit a cash flow crisis and was forced to appoint administrators.
Mr Kinnear said his first association with Australian Growth came in early 2003, when it was seeking to complete a rights issue.
He said the company always had a sound underlying business, but was adversely affected by its high level of debt.
“My view is that the company should not have gone into admini-stration or if it did go in, they should have negotiated with creditors quickly and then moved on,” Mr Kinnear said.
He said his restructuring proposal initially didn’t match what the secured creditor, National Australia Bank, was looking for.
“We didn’t have a big fat cheque,” Mr Kinnear told WA Business News.
“The way we operate is to put together a project and then go out and raise funds.”
He also believes he initially faced “a bit of a credibility gap” with the bank and the administrator, hence his decision to recruit financial heavyweights such as Mr Olson and Mr Wallace, who now sit on the board of RuralAus.
Mr Kinnear said the deal that was finally agreed in January was essentially the same as that he had first proposed one year earlier
The restructuring involved three capital raisings at successively higher prices – 10 cents, 15 cents and 20 cents – as the risks were diminished.
The major players in the deal also received shares at zero or minimal cost.
The four main backers of the restructure – Strategic Investments, Mr Chegwidden, PKF and Bell Potter – were issued with 12.5 million shares at 0.1 cents per share and nine million options exercisable at 10c/share.
With the stock currently trading at about 23 cents, they are well ahead.
Primary Securities, a financial advisory firm that has agreed to be the ‘responsible entity’, was issued 500,000 shares also at 0.1 cents.
Mr Kinnear believes it is fundamental to have an independent responsible entity, so there is no doubt they will put the interests of growers ahead of shareholders in the management company.
“We also needed to get back the confidence of growers. They had been let down by the previous management,” he said.
Three groups incurred losses from the restructure.
Holdings of shareholders in the company had their holdings diluted by a 1:5 consolidation and the new share issues.
Unsecured creditors, led by the ATO, were owed $5.6 million and got about 11 cents in the dollar.
The NAB, which was owed $17 million, took a much smaller cut. It has been repaid about $7 million, was issued with one million shares at no cost, and is still owed $3.5 million.
Mr Kinnear acknowledges the business has its difficulties.
It has put aside $1.4 million for remediation of its plantations, including replanting of some trees that are badly deteriorated.
Another issue is that some growers have not paid lease and management fees on their timber lots or interest payments on their loans.
Mr Kinnear said the company had taken a conservative and realistic view to provide for these issues and highlight the positives.
The company was generating annual cashflow of $2 million a year during administration, which could be as high as $2.5 million if all due payments are made.
It also has net tangible assets of 42c/share.
Mr Kinnear is confident this provides a good base for the revival of the company, which is hoping to launch new investment products into the market next year.