AWB has sold the bulk of its sagging Landmark Financial Services business in the latest stage of the grain handler's restructuring in the face of heavy debts.

Australia's former wheat export monopoly sold the division's Aus$2.4bn (US$2.2bn) loan book and Aus$300m debenture book to Australia & New Zealand Banking Group, which will overtake Rabobank to become the second-ranked lender to the country's farmers.

While AWB failed to disclose the sale price, it said that the deal was struck at marginally below book value, falling short of the expectations of some analysts.

"We had expected AWB to sell the loan book for its equity value," Australian broker Wilson HTM said.

"The discount reflects the difficult market conditions for asset sales in general, as well as specific concerns over loan provisioning given current credit market conditions."

'Good trade off'

However, the broker added that the deal was nonetheless a "reasonable financial outcome", getting shot of Aus$2.1bn (US$1.9bn) of debt from AWB's strained balance sheet and releasing up to Aus$168m of cash which had been used to support the Landmark loans.

"The sale frees AWB of a business that required increasing contributions of equity to sustain, and leaves it with a simpler and more sustainable business," the investment bank said, retaining an "outperform" rating on the grain handler's shares.

"While AWB will continue to be challenged on earnings growth, its capital allocation and returns continue to improve."

Difficult year 

The sale follows AWB moves including a rights issue and the closure of its Brazil division to shore up its balance sheet after a series of hits, including writedowns on fertilizer inventories and at Landmark Financial, landed the group with its first annual loss in at least a decade.

Landmark Financial also suffered from a jump from Aus$3.4m to Aus$18.6m in provisions for bad debts, as the impact of drought on farm profitability raised the number of loans going into arrears.

Two weeks ago, Standard & Poor's came within an ace of downgrading AWB debt to junk, giving the company a credit rating of BBB-, with a negative outlook, in part because of the "significant execution risk" surrounding the Landmark Financial disposal. 

Tuesday's agreement will also see most of the Landmark Financial Services staff transfer to ANZ, which will for three years also have exclusivity on AWB customer referrals for financial products.

AWB shares closed unchanged at Aus$1.18 in Sydney, after standing nearly 5% higher earlier in the day.