Struggling NZ-based Fletcher Building is asking shareholders to inject $NZ750 million into the company, which will in effect partially recapitalise a business that has been hurt hard by huge losses on some weak building contracts.
The fund raising is actually larger, with the company arranging a $NZ500 million line of credit with local banks in case US bond holders want to be repaid. This will be provided by the ANZ, Westpac and Japan’s largest bank MUFG.
Fletchers would provide a detailed update and full overview of the group’s strategy in June once a full review was completed, but already it has outlined at least two major asset disposals – its Formica and Roof Tile businesses.
Now, Taylor said Fletcher Building was undertaking fund raising to strengthen its balance sheet to “enable a permanent solution” to its current bank and US loan defaults.
It would now raise $NZ750 million through a fully-underwritten pro rata entitlement offer to shareholders, and establish a new “standby” banking facility of $NZ500 million, which may be needed if an agreement could not be struck with the company’s US debt backers, and they want their money back.
Proceeds from the offer would be used to repay $NZ714 million of debt, as well as the $NZ25 million cost of the capital raising.
That would drop the company’s net debt from $NZ2.26 billion to just over $NZ1.5 billion.
The share offer would see eligible shareholders offered the opportunity to buy one share for every 4.46 shares they owned at $NZ4.80 a share, a 23% discount to the last market price of $NZ6.27.
Any entitlements to buy shares that were not taken up by existing shareholders would be offered to institutions and for a retail book build by brokers.
Fletcher Building is on trading halt, which will be lifted on Friday.
Mr Taylor said yesterday the company believed that a strengthened balance sheet would “better enable it to execute its immediate and longer term strategic objectives”.
The company said that it will now focus its activities on New Zealand and Australia and would sell its Formica and Roof Tile Group businesses.
These will happen over the next year to 18 months and Mr Taylor said yesterday that he had no plans for the money raised from those sales. The most logical would be some more debt repayments and perhaps some capital management to reward shareholders.
Director said yesterday the funding raising moves are designed to strengthen its balance sheet following disastrous losses on 16 high-profile construction projects including SkyCity’s International Convention Centre.
Taylor said: "An outcome of the work that we have completed to date on the group strategy is that it is now appropriate to strengthen our balance sheet."
"Reducing our net debt also provides us with the opportunity to undertake divestment processes for Formica and the Roof Tile Group on terms that should maximise shareholder returns."
Fletcher had reviewed all its troubled building projects, five of which, including Christchurch’s Justice Precinct, have now been finished.
No further losses on the projects had been identified, and the company remained on course to post an estimated full year loss of $NZ660 million.
However, it had now found a problem project in its infrastructure construction business, the Puhoi to Warkworth (P2W) project to extend State Highway 1.
"At this point, Fletcher Building is reporting a nil margin for the P2W project," the company said.
By the way. Mr Taylor said yesterday that Wesfarmers had confirmed it didn’t own any Fetcher shares, contrary to a Fairfax Media report late last week.
