ELDERS was last night locked in discussions with QBE Insurance about the sale of its insurance division, in a deal believed to be worth more than $200 million aimed at helping the rural services group fix its ailing balance sheet.
The talks with QBE came a day before a scheduled meeting in Melbourne of the company’s senior management team and Elders’ bankers to discuss plans to overhaul its crippling debt.
Elders managing director Malcolm Jackman is expected to head to the US afterwards to hold discussions with the company’s US noteholders.
Since Mr Jackman, a former head of Coates Hire, was appointed late last year, Elders has been in a desperate race to offload assets and keep its bankers at bay.
The rural services company last month managed to get a three-month extension to short-term debt facilities originally due to expire on June 30.
But the company, which has net debt of about $800 million, has had to pay an extra 3 percentage points above the original cost of the loan.
BusinessDay believes the sale of the insurance division to QBE has not been finalised but it would unlock up to $150 million of cash on Elders’ balance sheet that its prudential rules require it to set aside to protect against insurance losses.
The company called a trading halt yesterday after its shares rose 3¢, or 12.2 per cent, to 27.5¢. Elders shares have lost more than 90 per cent of their value in the past two years, making it difficult to raise equity.
In May, Elders warned it expected to post a loss of up to $15 million for the year to June 30. At the time, Mr Jackman blamed the ‘‘double whammy’’ of reduced demand and falling prices for the profit warning.
Elders recently sold a 10 per cent stake in Elders Rural Bank to co-owner Bendigo and Adelaide Bank for $33.9 million and divested its remaining 20 per cent interest in Australian Agricultural Company for $84.5 million. It is also in talks with potential buyers of its Hi-Fert fertiliser supply division.
But talks with QBE mark the beginning of a likely break-up of Elders’ financial services business, which sells products ranging from insurance to financial advice to its mostly farm-based customers.
National Australia Bank has previously expressed interest in Elders’ financial services business, although its appetite has cooled since Bendigo Bank moved to a 60 per cent stake in the banking arm, which has a lending book of $3.7 billion.
Elders Rural Bank yesterday posted a 10 per cent lift in annual net profit to $45.1 million, boosted by lending growth and investment income.
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