tree holder scenario?

re: Ann: Half Yearly Report and Accounts (Rheinhardt)
Forum: ASX - By Stock (Back)
Code: SHV - SELECT HARVESTS LIMITED ( $4.36 | Price Chart | Announcements | Google SHV)
Post: 5073431
Reply to: #5056587 from Rainmaker2000 Views: 65
Posted: 21/02/10 12:55 Stock Price (at time of posting): $4.32 Sentiment: Hold Disclosure: Stock Held From: 115.70.xxx.xxx
ASX Announcement: SHV-332183 - Half Yearly Report and Accounts

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The following article adds some flesh to the Hillston announcement in the Half Yearly Report.
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18 Feb 2010

The decision driving Bendigo nuts.
Robert Gottliebsen

Sometimes in the mire of a corporate crash you uncover an amazing success story. Who would have guessed that buried in the Great Southern debacle was a large drought-proof almond plantation that looks set to be one of the worlds lowest cost almond producers? Even better, it is flourishing at a time when the Chinese have just started to develop a real appetite for almonds.

However, I fear that many of the Great Southern almond MIS holders plus the Bendigo Bank may miss out partly because of their long running dispute. But both still have a chance to win because of a bizarre series of events.

Back in 1997 David Bryant started a rural fund management operation, Rural Funds Management (RFM), selling agricultural investments to the clients of financial planners that were not based on tax. His early investments did not fare well and they were hit by low agricultural commodity prices and the drought. But then one of the RFM trusts (RFM Riverbank) bought control of land suitable for almond growing near Hillston in southern NSW, which could access water via an aquifer (underground river).

Great Southern, on behalf of MIS investors, leased the RFM Riverbank almond plantations' cash flow for 20 years and some 569 MIS subscribers began paying their up front payments and yearly fees to develop the plantations almost all of which were financed by what is now the Bendigo and Adelaide Bank.

Great Southern also saw enormous potential in the Bryants Rural Funds Management business and in July 2007 just before the global financial crisis erupted Great Southern bought out Bryant. Part of the deal committed Great Southern to subscribing $35 million to RFM Riverbank units to help develop the Hillston almond property venture.

Great Southern had expected to be able to sell the $35 million land units to their clients and set up a marketing organisation, but in the global uncertainty it failed to attract buyers. Bryant remained a director of the key plantation trust company, but Great Southern honoured the commitment and subscribed $35 million to take up units in the almond property investment.

Had Great Southern not loaned the money, RFM Riverbank would be now insolvent and there would be nothing for anyone.

Great Southern last year collapsed ( Who felled Great Southern?, May 18, 2009; The Great Southern sell-off, May 18, 2009) and a series of transactions are now taking place to unwind the RFM position. Bryant is buying back his Rural Funds Management company for about a tenth of what he sold it for. He has arranged investors to buy the Great Southern $35 million plantation investment for only $15 million.

And he is offering Great Southern almond MIS holders an attractive deal, but only expects about a quarter of them to take it up. At a meeting on February 24, Great Southern MIS almond investors are being first asked to appoint Rural Funds Management as manager. If 50 per cent of all MIS units do not appoint RFM as manager then a new set of scenarios will unfold.

Assuming they make the RFM manager appointment, then almond MIS holders will have the chance to pay about a years tax deductible rent back (which totals between about $32,000 and about $40,000 per quarter hectare) and continue to make the payments they agreed to make under the original Great Southern arrangement. Alternatively they can a walk away from the combined $36 million they have invested with no more outlays, but they will still have a Bendigo Bank debt totalling close to that amount.

Every time a MIS holder walks away, their entitlement will be taken up by the listed Select Harvests group which will acquire the management rights for that part of the plantation. Select will take up the Great Southern MIS entitlements on better terms not dramatically better, but of course all the money already spent by the MIS holders gives Select shareholders the chance to make a lot of money.

If the Great Southern almond unit holders decide to leave the receiver as the almond manger, they will forfeit any entitlements because they are already well behind on the rent. The receiver will almost certainly do a deal with Select Harvests.

A large number of the MIS holders who were funded by the Bendigo Bank are now in no position to keep paying their almond rents because they have lost large sums on the stock market and other places. Nevertheless the plantation owners and Select Harvests are throwing serious money at this project because the outlook for low cost almond producers is good, particularly as the worlds greatest almond producers in California are high cost and cannot expand production in the short term.

The Bendigo Bank has some tough decisions. A big slice of Bendigo Bank exposure to Great Southern MIS subscribers covers timber and where Gunns acquires the plantations, the Great Southern timber investors will probably get their money back. By contrast, grapes and olives face a tougher time.

In almonds there are obviously risks, but potentially they could make a substantial profit. RFM says that it expects the almond plantations to be cash-flow positive by 2013 and reach maturity by 2014.

Given that many MIS almond holders can't afford the required back and future payments (let alone repaying the Bendigo bank), Bendigo Bank will need to decide whether to make further loans to problem customers to maintain the value of the equity.

Some of the 569 investors may also be part of the class action. The situation requires very entrepreneurial banking which be will test CEO Mike Hirst. Select Harvests will he hoping that Hirst stumbles because they stand to make a lot of money on every Great Southern person who does not take up their almond entitlement.
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