Friday, March 5, 2010

Allied Farmers Fraud passes with little fanfare

So Allied Farmers Ltd [ALF.NZ] "assets" are now worth NZ$175.5 million according to their half year result to 31/12/09, whereas back in November 2009, just 3 short months ago, they were presented to prospective and existing shareholders in Allied at more than double that at $392 million. The prospectus had a balance date of 30 June 2009.

The assets in question were assumed from their purchase of Hanover Finance and United Finance and Allied's own assets.

The prospectus value was calculated on a gross realisation basis; however, the NZ international financial reporting standards (IFRS) require acquired assets and liabilities to be recorded at acquisition date "fair values" or closer to the depressed market rate of what most of the semi developed or undeveloped land and building assets that the company has on its books - most of that is junk.

At the time of the announcement of the transaction in November the nearly $400 million of assets was used as the basis of valuing shares in the restructured company and therefore its capital value on the NZX. At the time ALF shares were trading at around 30c, which valued the company at more than half a billion. Clearly there was some fat in the system even then!

At its current share price of 7.9c per share or around $154 million total capital value, this values the company at $20 million under the current asset valuation.

My point is that given that under IFRS standards their assets should have been valued at the lower rate of $175.5 million because that is the way figures should be honestly represented in any prospectus, Allied Farmers shares should have been issued at closer to 10c per share to Hanover and United creditors and not over double that.

Directors of Allied, Hanover and United, and the NZX and Securities Commission who are respectively supposed to do due diligence themselves on companies listing on the NZX and manage the appropriate regulations in a manner that sees shareholders presented with honest disclosure, have all failed to pass the bullshit test, that is come up with an acceptable excuse as to why they either allowed this fraud to eventuate and fail to act at least when the true asset valuations were fully disclosed - even though most commentators knew at the time that their assets had a false sense of their own security.

Either way the market seems to have come to a fair valuation of its own and that I think maybe that it is higher than the assets will realise in the current market.

In other jurisdictions some of these people would be in chains for doing what has been done here.

Allied @ Share Investor

Allied Farmers: What's it Worth?

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