Wellington, Aug 3 NZPA - Allied Farmers is hoping to raise $19.3 million in a partially underwritten capital raising to reduce debt and achieve longer-term business plans.

The company, which has slashed the value of Hanover Finance assets it purchased last year, will undertake a $2.25m institutional placement at 2.5c per new share, and a rights issue to Allied Farmers shareholders entitling them to one new share at 2.5c per share for every three shares held.

McDouall Stuart Group has underwritten the capital raising for $9m, having arranged the institutional placement.

"We have decided that the rights issue with a placement is the best current option for us to bring in fresh capital to launch some of our planned initiatives and gives us the time needed to realise good value from our asset portfolio, and continue our focus on reducing debt," Allied chairman John Loughlin said.

Last month, the company negotiated a further six-month extension of its $16.5m loan facility with Westpac as it seeks new bank funding options.

Allied Farmers, whose new shares would be at a discount to the current 5.5c share price, would increase the number of shares issued next year if the group's net tangible assets fall below the issue price at the end of this financial year.

The company wanted to protect investors, given challenges in the rural and finance sectors and the flat market for the realisation of the ex-Hanover and United assets, Mr Loughlin said.

Allied recently sold the 23.5ha Five Mile property near Queenstown, formerly a Hanover asset, for close to its latest valuation. The company purchased $396.2m of Hanover Finance and United Finance assets last year and has since written them down to $124m.

"We continue to seek opportunities for realising value from those assets and we have a number of initiatives planned for our rural services businesses that will differentiate our business and stimulate our market share," Mr Loughlin said.

The new shares will be renounceable, so shareholders will be able to sell their rights to shares on the NZX.

McDouall Stuart has the right to apply for any shares not taken up.

The prospectus will be lodged early net week, and documentation sent to shareholders from August 11.