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Legumex shares plunge as creditors close in on canola plant

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Shares in food processing group Legumex Walker collapsed to an all-time low, as creditors raised the threat of default at its troubled Pacific Coast Canola subsidiary by demanding the repayment of loans which the division does not have the money to meet.

Legumex announced that Pacific Coast Canola had received a demand from AgCountry Farm Credit Services, agent for a syndicate of lenders, for repayment of "all amounts" they were due, estimated at $54.6m.

The demand was made on claims that Pacific Coast Canola, which runs a canola crushing plant in Washington state, had breached conditions on its loan.

The canola plant has a total capacity of 350,000 tonnes of canola seed, and is the largest in the western United States.

Lenders to take control?

However, Legumex, which owns 84% of Pacific Coast Canola, said that the subsidiary "does not currently have access to funds" to meet the repayment, raising the potential for its investment in the plant to be written off.If it is unable to find alternative lenders to refinance the facility, the plant "will cease its operations and should that occur, the company expects that Pacific Coast Canola would no longer have any equity value", Legumex said.

As of March 31, the group valued Pacific Coast Canola's assets at Can$112.9m, or Can$10.3m net of liabilities.

The operation could instead fall into the hands of its lenders, with the loan for which they have demanded repayment secured, first lien, against all Pacific Coast Canola assets.

Legumex said it is "not aware of what actions its creditors will take to enforce its rights" for repayment.

Limit to damage

Legumex said it had provided a letter of credit to $2m to the canola crusher, a facility which "expected to be drawn down by AgCountry".

The group has also begun talks with other lenders in a quest to ensure it remains compliant with other credit facilities which have clauses covering default in other parts of the business.

However, Legumex, which in March of this year signalled interest in takeover approaches, said it did not expect the troubles at Pacific Coast Canola to affect its main special crops division.

The special crops unit, which operates 14 plants in Canada, the US and China, "will continue to work with its growers, customers and suppliers in the normal course".

Crush margins squeezed

The Pacific Coast Canola facility has been running at a loss, and significantly under capacity, since it came into operation, due to low processing margins.

Canola crush margins have been pressured by the high price of the Canadian rapeseed cultivar, while low mineral oil prices and ample supplies of US soybeans and European rapeseed keep vegetable oil and protein meal prices supressed.

On Thursday food group Bunge reported a fall of 47% to $164m in operating profits at the group's core agribusiness division, thanks in part to "significantly lower results" in processing of softseeds, such as canola.

Legumex Walker shares were down 66.5% at Can$0.82 a share in midday deals in Toronto.

By Agrimoney.com

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