And PaperlinX seems to have fallen around $50 million short of its target of raising $200 million from institutions through an accelerated non-renounceable entitlement offer. The paper merchant and manufacturer said yesterday that the institutional component of its rights issue announced on October 1 had raised $150 million from new and existing institutional shareholders.
The company had originally talked about getting $200 million from institutions and up to $100 million on top of that from the retail component of the offer.
Now the company says it’s looking to raise up to $77 million from the retail offer which opened yesterday.
The entitlement ratio was set at two new shares for every five existing shares held in the company as at last Friday evening, with the offer price for both the institutional and retail offers set at $1.25 per new share.
However, the market took a set against the company because it knows that the shortfall means the group will be under pressure to sell assets to raise money.
Selling assets in this climate is a big ask and it could very well not achieve that because of a shortage of finance and any purchaser.
The issue was undertaken after the likelihood of asset sales to raise the funds to meet the debt reduction demanded by the lenders didn’t eventuate.
PPX shares shed as much as 29%, or 50c, to $1.25 at one stage. They ended at $1.36, off 39c or 22.3% as investors took a glum view of the shortfall news. The shares had been suspended from September 26 while the institutional offer was conducted, so there was also an element of catch up for the recent losses.
The company said that the net proceeds will be used to repay debt, including the committed $150 million reduction in PaperlinX’s multi-currency facility by May 2009.
Brokers say the capital raising is crucial for PaperlinX, which has been hit by weak paper demand, rising costs and the impact of a strong Australian dollar which made imports cheaper.
That factor has largely vanished with the plunge in the value of the dollar, while inflation is expected to start easing (thanks though to the impending slowdown). Interest costs will fall after yesterday’s 1% rate cut, so there may be a glimmer of light at the end of the company’s very gloomy tunnel.
New shares issued under the institutional entitlement offer will be allotted and commence trading on October 15. The retail offer closes on October 24.
