Hastings Diversified Utilities Fund (HDF) went into a trading halt yesterday after deciding against selling assets to raise cash in favour of a $250 million capital raising.
It will be the first new capital raising of 2009-10 financial year after some $40 billion was raised in the 2009 year.
Hastings said the funds from the raising will be used to repay an $80 million loan and cover its hybrid securities.
It plans to raise $192 million from a one-for-one entitlement offer of new stapled securities and $58 million from an institutional placement of new securities, at 90 cents each.
That’s a 24% discount from the last sale price for the securities of $1.185
The offer has been fully underwritten by JP Morgan and UBS.
HDF’s responsible entity Hastings Fund Management said in a statement, the raising will strengthen HDF’s balance sheet and provide it with capital.
The manager said its independent directors had considered indicative proposals to buy all or part the Epic Energy business, which holds three major natural gas transmission pipelines system in Victoria and South Australia, and its South East Water business in the UK, alongside the capital raising option.
Those plans, especially the proposal to sell the Epic Energy business, has generated a lot of adverse publicity, as had fees paid by the fund to the responsible entity.
Hastings Fund Management was entitled to an incentive fee of just over $18 million for last year for outperforming the ASX 200 industrial accumulation index.
(Fees since the fund was floated in 2004 total $57 million, including the latest performance fee.)
The performance fee was to be paid through the issue of HDF securities at a minimum of $2.56 a security (7.2 million securities), but it has been deferred (but not waived) because of the slump HDF securities in recent months amid speculation about its debt problems and possible asset sales.
"After consideration of the options available, and having sought independent advice from Grant Samuel, the independent directors concluded that, on balance, the offer is the better decision for HDF’s existing securityholders," it said yesterday.
Following the offer, HDF says it will have a positive net cash position at the fund level and its consolidated gearing will be about 64%.
After the loan repayment and hybrid securities cover is accounted for, the remaining offer proceeds of about $50 million will be used for the proposed expansion of Epic Energy’s South West Queensland pipeline, which transports coal seam gas.
HDF said the chief operating officer Tom Meinert plans to leave the fund after the security offer is completed. His role will be taken over by HDF chief executive Steve Boulton until a replacement is found.
