By Pam Graham of NZPA

Wellington, Aug 12 NZPA - Allied Farmers Ltd's shares fell to 2.5 cents today after the company slashed the value of assets acquired from Hanover Finance and had the rating of its finance company unit cut to a level indicating vulnerability to default.

Allied Farmers has suspended a planned capital raising and its finance company Allied Nationwide Finance Ltd (ANF) has suspended its prospectus while it sorts out a breach of its trust deed with trustee Guardian Trust.

It has now slashed the value of $396.2 million worth of assets purchased from Hanover Finance and United Finance in December to $94.3 million. Allied Farmers managing director Rob Alloway said the figure announced today included accounting adjustments. They were Allied Farmers assets and had nothing to do with ANF.

Mr Alloway said Allied Farmers was concentrating on getting the ANF trustee comfortable.

"One way or another we are the owner of the business, we want to make sure we have offered it appropriate levels of support," he told NZPA.

A range of different options and opportunities were discussed at a meeting with the trustee yesterday. Mr Alloway said the meeting went well.

ANF received notice of a breach of its trust deed financial ratios on August 6 and has 14 days to remedy the situation. It disputes the breach.

As a result Standard and Poor's cut ANF's issuer credit rating to CC from B and kept the rating on credit watch. This implies a one-in-two likelihood that the rating may be lowered within the next three months.

The CC rating recognised a strong prospect that ANF could default on its obligations within six months.

"The news on August 6 that the trustee believes ANF to be in breach of a covenant under its trust deed -- which saw the prospectus withdrawn from the market -- has added significantly to liquidity pressures and raised the risk that ANF may face a cash shortfall while they are forced to repay all debentures that mature," Standard & Poor's credit analyst Peter Sikora said.

Standard and Poor's said that even if ANF was able to remedy the trust deed breach with the small capital injection it was currently negotiating with its parent and meet liquidity needs though August, the risk of it falling short of cash will not abate enough to support a higher rating without successful and timely asset sales and a recapitalisation.

ANF's ability to recapitalise also depends on the parent, Allied Farmers, successfully accessing new capital that could be passed through to ANF, or securing additional capital from a new investor.

ANF needs to remedy its trust deed breach, successfully re-establish its ability to raise and retain debenture investor support, and successfully execute a range of asset sale and recapitalisation initiatives to stabilise its situation.