It's Do Or Die, Embattled Allco Tells Its Banks

Sydney Morning Herald

Tuesday November 4, 2008

Danny John

THE directors of the embattled Allco Finance Group are looking for assurances from its banking syndicate that it will continue to support the debt-stricken company - or they may be forced to bring in a voluntary administrator.

Negotiations between the two sides are set to go down to what sources said would be the last minute in an effort to find a way out of the latest impasse over Allco's inability to meet its next two monthly debt repayments, after its planned asset sale program was derailed by the global credit crisis.

The banking syndicate of 12 lenders remains sympathetic to Allco's plight, but the company has yet to secure unanimous agreement from all the banks to roll over payments totalling $147.5 million due this month and in December.

The key Australian banks, Commonwealth and Westpac, are said to want to give the company more time to meet the agreed target of cutting another $266 million from its pile of debts to $400 million by next June.

However, the offshore lenders are understood to be more reluctant to continue their support, a view that has raised the prospect that Allco could find itself in the position of trading insolvently if its cash lifelines are severed for whatever reason. Under that scenario Allco's directors - the chairman Bob Mansfield, his non-executive colleagues Rod Eddington and Neil Lewis and the chief executive, David Clarke - would have little option but to call a halt to the nine-month battle to keep the company afloat.

The company is hopeful it will get several more weeks' breathing space, which, in turn, will allow financial markets to settle and for Allco to find buyers for its unwanted assets. But the company has said it will not offload the businesses at unrealistic prices despite its debt pressures.

Allco had wanted to secure a standstill arrangement on the two affected payments by yesterday so it could announce the new terms to the ASX by the deadline flagged at its annual meeting almost a fortnight ago.

But with the weekend talks expected to spill over for as much as another 24 hours, the company yesterday asked the ASX to put its shares into a trading halt until it was in a position to clarify its financial position to the market.

In a brief statement, Allco said that the suspension would probably be lifted before the start of trading tomorrow.

Another concern for the group is its ability to tap finance for its aviation and shipping leasing businesses, on which its future rests. The combination of the credit crunch and the worldwide economic downturn is adding to the group's cash flow concerns.

© 2008 Sydney Morning Herald

Back to News Index | Back to Home