Evans & Tate risks having to immediately repay A$20m (US$14.7m) to convertible noteholders.

The troubled Australian winemaker has breached a covenant under the Convertible Note Trust Deed for its listed 8.25% Convertible Notes. The agreement restricts the company's total liabilities to 80% of total assets. E&T's chief executive, Martin Johnson, told the Australian Stock Exchange yesterday (8 March) that liabilities as of the end of 2005 stood at 86% of assets.

The trustee, a unit of Permanent Trustees, has been asked to issue a waiver, but the breach gives it the right to call in E&T's debt. Johnson told local press, however, that he thought this was "unlikely."

The company blamed the breach on the sale of the Griffith Winery in New South Wales, which had forced it to draw on another A$12m from ANZ Bank.

Johnson also noted that hard times in the UK wine market had also contributed to the situation. "There's plenty of volume but the problem is that the trade takes all the margin out because they want such a heavy discount," Johnson told The West Australian.

Late last year, noteholders passed a resolution which exempted E&T from a "technical" breach of the covenants that were to occur when switching to International Financial Reporting Standards, which came into effect on 1 January. But E&T was now in a "material breach" of the covenant, Johnson told the paper.

Evans & Tate has suffered due to Australia's wine glut and has been forced to announce a series of write-downs of surplus wine. In 2004/05, the company booked an annual net loss of A$49.8m.