Forge Group (FGE) will join the likes of Elders (ELD) in being in the hands of a bank or banks as it battles to survive. That’s the bottom line after a dramatic day on the market yesterday for its shareholders.
The company revealed $127 million in losses on two power station contracts, which will result in a trading loss of as much as $90 million this financial year.
And, it also said it required an extra $45 million to complete the two power station projects which are at the core of its woes, hence the need for a bailout, hence the needs for more capital.
Now, with the support of the ANZ bank, Forge will attempt to trade its way out of these problems and establish a firmer financial footing in 2014.
It has taken Elders five years to try and trade its way out of its problems, with the growing support of its banks.
Shareholders certainly hope Forge will take a shorter period of time to re-establish itself.
They had to watch the company’s shares smashed lower yesterday by more than 90% at one stage as the full story of huge losses on two power station contracts emerged as the factors that have crippled the Perth-based company and pushed it to the edge of collapse.
The shares fell from $4.18 where they had closed on the 4th of this month before a number of suspensions as Forge management and advisers sought ways to save the company and obtain new finance.
Share placements and emergency issues were ruled out at prices as low as 50 cents as the financial disaster in the two power contracts emerged.
The shares traded down to 28.5c – off more than 90%, which valued the company at just $33 million – in the minutes after re-listing. At $4.18, it was valued at $360 million, so the loss has been nasty for existing shareholders.
They rebounded a touch to trade around 68.5c at the close, still down 83.6%, as it become clear the ANZ Bank was standing behind the company and not putting it into administration or receivership. Still it is one of the biggest falls in a company’s share price for some time.
FGE YTD – Forge shares smashed on shock loss, bailout
Under the bailout deal, the ANZ will provide an immediate $60 million in new working capital facility, up from $11 million, while deferring quarterly principal repayments of an existing acquisition facility for the next three quarters.
As well, the ANZ will receive warrants equal to 13% of Forge’s capital, which if exercised, will make the bank the biggest shareholder in the company.
"Liquidity is stable now … this is a debt fix," Forge’s managing director David Simpson described the deal with the bank in a briefing.
The company said in yesterday’s statement that it has "a contracted order book exceeding $1.8 billion, of which approximately $900 million is expected to be delivered in FY2014. In addition, Forge Group has a growing base of Asset Management contracts, a qualified weighted tender pipeline valued in excess of $1.4 billion, and more than $1 billion in active tenders underway."
That’s probably what kept the ANZ interested and involved in the company’s survival. One of the biggest of those contracts is $830 million of work on the Roy Hill iron ore mine development of Hancock Prospecting in Western Australia.
Forge’s collapse would have caused delays to that project.
Putting the $127 million write-down to one side, the gross profit as measured by earnings before interest, tax, depreciation and amortisation would be $45 million to $50 million, Forge said in yesterday’s statement.
But in terms of the company’s problems, that’s irrelevant.
The losses and lack of capital are overwhelmingly bad and it needs the support from the bank because the market wouldn’t touch it.
Forge revealed problems with the Diamantina power station in western Queensland and the West Angelas power station in WA in its original announcement earlier this month.
It then sought to find out the extent of the problems and the financial impact, and quickly established that a fund raising would be needed.
But when that effort collapsed, it turned to the ANZ, which signalled its support on Tuesday night of this week.
And of course, there won’t be any dividend for shareholders this year (meaning they join the likes of shareholders in Qantas, and Elders which are also not paying dividends).
