Headwinds increase for Allied Nationwide

Allied Nationwide suspended its prospectus after the company received notice from its trustee about a breach in a financial ratio.

Guardian Trust says total liabilities exceed 90 per cent of total tangible assets, though the company denies it has breached the cap.

According to Allied, it presented financial information to the Trustee for the year ended June 2010 that showed the compliance. The current position will now be confirmed once the audit is completed but that may take up to the end of August. Allied has 14 days to remedy the position.

Allied is dependent on new deposits because of a falling rate of reinvestments over recent months. The company's reinvestment rate fell to 29.3 per cent in May 2010 from an average of 48.2 per cent in the six months to April 2010.

Allied will have to run down liquid assets and call on funding from its owners to meet the withdrawals by depositors.

Liquidity at the financier's parent, Allied Farmers, is also stretched. Nationwide is nevertheless counting on Farmers to satisfy one commitment for NZ$3 million and a second, under a factoring arrangement, for NZ$21 million.

With a credit rating of BB-, down from B two months ago, and a further review under way, Allied Nationwide will have to work for new investment when its prospectus, and financial ratios, are back in order.

Even then Nationwide needs more capital, which it hopes to receive in cash or via a transfer of loans.

If this doesn't happen and alternative sources also dry up, the company says it would "then need to assess its ability to continue trading."

Allied does not qualify for extension to the government's retail guarantee scheme.