February 25, 2008 / 12:05 AM / 12 years ago

REFILES-UPDATE 3-Allco Finance to sell non-core assets

(Refiles to make clear that currency conversion in paragraph 15 is to U.S. dollars)

(Adds CEO and analyst comments, details)

By Denny Thomas

SYDNEY, Feb 25 (Reuters) - Australian asset manager Allco Finance Group Ltd (AFG.AX) said it plans to sell some assets as it tries to meet debt repayment deadlines, as uncertainty about its outlook sent its shares diving as much as 66 percent.

The planned restructuring would enable Allco to focus on its core aviation, shipping and real estate assets, which bring in about 75 percent of its revenue, while exiting its infrastructure and financial assets, it said in a statement.

Allco reported a 14 percent drop in first-half profit after delaying its results for 10 days. Its shares tumbled to a near six-year low of A$1.02 after trade resumed from a two-week suspension, and analysts said Allco faced an uphill struggle.

“Allco’s strategic objective of becoming an asset manager has been significantly impacted following recent events and that transformation is going to take significantly longer,” Andrew Hills, Wilson HTM Investment Group analyst said.

“I can’t see investor confidence restored in the short-term.”

Allco’s market value has shrunk to about A$445 million ($412 million), just one-tenth of its value last May. The fall prompted banks to call in loans, leading to the restructuring.

The company’s shares tumbled last month on concern over high debt and its business model, amid market speculation it was in sale talks and that its lenders had called in a corporate restructuring team.

Allco, which earns the bulk of its revenues by leasing aircraft and ships, has been selling down assets from its balance sheet and growing its specialised funds management business.

Last year it was part of a consortium including Macquarie Group Ltd (MQG.AX) which failed in a $9 billion buyout bid for Qantas Airways Ltd (QAN.AX).

The company’s shares last traded at A$1.11, down 64 percent in a broader market up 0.9 percent.

SHUNNED

Investors have shunned Australian companies with high debt, such as Centro Properties Group CNP.AX and MFS Ltd MFS.AX, as they struggle to refinance their short-term loans due to higher funding costs on the back of the global credit crisis.

“There would be difficulty in recognising the price you are after when it is recognised that you are potentially a distressed seller,” said Jamie Spiteri, manager of institutional sales at Shaw Stockbroking, explaining the share move.

“The market much prefers the more established end of the financial sector, rather than groups like Allco,” Spiteri added.

Allco said on Monday its debt-to-equity ratio stood at 56.1 percent at end-December and it planned to bring it back to an acceptable level by June 2009.

Allco had about A$1.15 billion ($1.1 billion) in maturing debt over which it was negotiating with banks. That includes A$900 million in senior debt which it may need to pay in 90 days.

Chief Executive David Clarke declined to say how much money the company plans to raise by selling off assets or give a target debt-equity ratio.

“We have not breached any of our covenants, but if we were to be required to repay A$900 million ... that will be very difficult for us,” Clarke told a media briefing.

He said Allco did not plan to raise money by selling shares.

“There have been a number of enquiries. We do not currently have in front of us any binding proposal,” Clarke said of the planned asset disposal. The company, which has about 620 staff, flagged significant reduction in employees.

“We are going to go to a very simplified funds management model,” Clarke said. “Principal income will be that of managing the assets on behalf of our clients.”

Allco said the restructure proposal was being viewed positively by its senior lenders.

While Allco did not name potential buyers, media reports have said Macquarie and private equity investor Texas Pacific Group [TPG.UL] were potential bidders for some Allco assets.

An Allco spokeswoman said boutique advisory firm Caliburn Partnership was assisting in the revamp.

Allco said it agreed to sell its stake in the Consolidated Edison (ED.N) power generation investment portfolio to its partner in the venture, Industry Funds Management. ($1=A$1.08) (Editing by Jonathan Standing and Valerie Lee)

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