Banks Tighten The Screws On Allco

The Age

Wednesday July 2, 2008

Stuart Washington

ALLCO Finance Group shareholders are learning to live with banks on their backs.

An announcement of a fifth reprieve on its bank financing resulted in a momentary 15% rally in the share price yesterday.

Not that 15% in Allco shares means much any more. Its shares initially rose 15%, or 6, to 46, a far cry from their $13.23 peak of last year. They settled to close at 41.5, up 1.5, or 4%, for the day.

Allco is no longer in the ASX 200 and now ranks 416th out of 495 companies in the ASX All Ordinaries Index, based on its market capitalisation.

The company has been given a new deadline of July 31 to sort out its refinancing as the banks continue to call the shots inside Allco.

The banking syndicate includes Westpac, Commonwealth Bank and ABN Amro.

Allco has previously announced tough bank-imposed conditions on its operations, including hitting a target of reducing overall debt from a previous facility of about $1 billion to $400 million by September next year.

Security over the group's assets has also been placed in the hands of the banks.

The scrutiny of the banks means Allco chief executive David Clarke has delayed putting out a conclusive restructuring plan for the limping business as the banks continue to "roll" their review of the loans.

The alternatives are for the banks to agree on longer-term financing or to pull the plug on the business and force a fire sale.

The delay in finalising Allco's debt financing is in contrast to Babcock & Brown, which revealed on Monday that it had secured approval from its banks to remove a market capitalisation trigger from its loans.

It has reduced its senior debt to $831 million, through sales of $177 million in assets in businesses, including aviation, rail and shipping.

Allco has also given guidance that it will face much higher interest rates if it successfully secures longer-term bank support for its business plan.

Along the way, Allco expects to post the biggest loss in Australian company history, having warned that write-downs of goodwill and the value of its management rights may result in losses of more than $1.5billion.

Bankers have been given power in the Allco situation because its share price plunge in January broke through a previously undisclosed market capitalisation trigger that allowed its bankers to review a $250 million bridging loan and $900 million in senior debt.

KEY POINTS

- Debt must be cut to $400 million by September next year.

- Company faces higher interest rates.

- Allco expects to post Australia's record loss.

© 2008 The Age

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