Farming Systems accidently breaches bond covenant

Farming Systems accidently breaches bond covenant

By Jason Krupp

Feb. 25 (BusinessDesk) - NZ Farming Systems Uruguay Ltd., the South American dairy operator, said it has inadvertently breached a bond covenant which could force it redeem some of the US$30 million bonds is has on issue in Uruguay.

The company, which was recently acquired by Singapore's Olam International, had committed to providing a copy of its new business plan to all bondholders through a fiduciary by Feb. 18. However, the fiduciary and some bondholders did not receive their copy by this date. The breach gives bond holders the option to request a redemption.

NZS is seeking a waiver of the breach and has requested an urgent meeting of bondholders which is expected to be held within days, adding that it does not anticipate any adverse reaction.

The news comes after the company said last week that it expects earnings to stay in the red for another two years before turning positive, and wants to raise up to US$110 million to implement its new business plan.

Farming Systems reported a net loss of $6.8 million in the six months ended Dec. 31, smaller than the loss of $7 million a year earlier.

The company is targeting positive net profit in the 2012/13 financial year, and positive earnings before interest and tax in the 2011/12 year. From then on, it expects EBIT to improve to about US$25 million.

That’s contingent on the new business plan, brought in by Olam, which aims to reduce the effective dairy area by 20%, and develop more milking sheds. It expects to triple milk production to 300 million litres over the next two years, with the herd number forecast to rise to 48,000.

At US$69 million, the plan is US$15 million more expensive than budgeted, and Farming Systems expects to raise between US$100 and US$110 million in the next six to 12 months to cover the capital expenditure costs and repay a US$50 million loan from Olam to end its previous management contract with PGG Wrightson Ltd.

The shares were unchanged on the NZX yesterday at 56 cents, and have declined 9.7% so far this year.

(BusinessDesk)

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