Diversified developer Lendlease is asking investors for $1.15 billion to shore up its balance sheet and protect its global pipeline of developments from the expanding ravages of the coronavirus pandemic.
At the same time, the company revealed it had arranged another $900 million in new debt from its bankers, taking the total of cash and credit lines to $3.5 billion, asked senior staff and nonexecutive board members for salary and fee cuts of up to 20% and said it would examine the question of a final dividend “at a later date”.
As well it has again said it is committed to exiting its engineering business to a Spanish buyer, but will have to retain and troubled Victorian government contract in Melbourne, but has paused the sale of its services business.
Shortly after issuing a trading halt Tuesday morning, Lendlease said it will undertake a fully underwritten institutional placement to raise $950 million and a non-underwritten securities purchase plan for a further $200 million.
“This equity raising, coupled with the actions we have already taken, will strengthen the group’s balance sheet position during this uncertain economic environment with available liquidity increased to $3.95 billion,” chief executive Steve McCann said in the statement.
The fresh funds will support Lendlease’s $112 billion global development pipeline and provide flexibility for further investments, he said.
He described the equity raising “as a prudent measure to strengthen its balance sheet given the current market uncertainties.”
“The equity raising will enable Lendlease to be well-positioned to continue with the delivery of its development pipeline and take advantage of investment and development opportunities as markets stabilise.”
The $950 million placement is fully underwritten and will be offered to institutional investors at $9.80 each, an 8.2% discount to the last sale price of $10.68 on Monday which was a rise of 3.79% on Friday’s close.
The placement will result in the issue of approximately 96.9 million securities, representing approximately 17.2% of Lendlease’s existing securities on issue. The usual 15% limit has been relaxed until June, allowing issues of up to 30% of capital.
“Eligible security holders who bid for up to their ‘pro-rata’ share of new securities under the Placement will be allocated their full bid, on a best efforts basis,” Lendlease said.
Following the completion of the Placement, Lendlease will offer eligible security holders the opportunity to participate in a non-underwritten Security Purchase Plan (SPP) up to $30,000 each, free of any brokerage or transaction costs, to raise up to $200 million.
“The majority of our projects have continued operating using revised methodologies to seek to comply with social distancing and safety standards. Where necessary, we have implemented safety pauses while we work through the required changes, such as we have done in London, which is currently implementing a phased reopening across a number of projects.
“Shutdowns of our projects have been mandated by governments or public authorities in some offshore regions, including Singapore, Kuala Lumpur, Milan, New York, and Boston.
“Sites in some of these locations are now progressing towards restart. Extensions of time on projects that have been mandated to pause by governments or clients should mitigate the financial risk,” The company said.
Lendlease said in the statement it is still intending to exit its engineer business via a sale to Acciona, the Spanish infrastructure, and building group.
“The sale of the engineering business to Acciona continues to progress with approval from the Foreign Investment Review Board having been obtained and work on satisfying other conditions ongoing.
However, it is too early to determine whether these conditions will be satisfied within the time periods required in the sale agreement, or in time for completion in H2 FY20.
The company said that it now expects “that the Melbourne Metro project will be retained by Lendlease. The project consortium is continuing to work with Government on a confidential basis to resolve issues in relation to the scope and costs on the project.
“The sales process for the Services business has been paused given the uncertainty in market conditions.
“Lendlease has previously disclosed a restructuring cost estimate to exit the Engineering and Services businesses of $450 – $550 million. Included in this cost estimate are implementation and selling costs, indemnities included in any sale agreements and potential costs to cover concluding projects retained by the Group, including Melbourne Metro.
“Lendlease considers the cost estimate, together with existing provisions, remains appropriate to cover concluding retained projects and to exit the noncore business, subject to any unknown impacts arising from COVID-19.
The Group’s cash and undrawn facilities following the institutional placement total $3.95 billion which includes approximately $900 million of additional facilities with terms ranging from 12 to 24 months which Lendlease has arranged to enable the Group to manage through a potential sustained downturn.
“These additional facilities are credit approved but are subject to formal documentation. Other than the maturity of the $225 million medium-term notes in May 2020, none of Lendlease’s existing debt facilities expire until FY22.
Given the current environment, the Lendlease Board will determine at a later date whether a final dividend for FY20 will be paid from Lendlease Corporation Limited, based on the circumstances at the time. Subject to availability, a distribution will be paid from the Lendlease Trust.
In addition, Lendlease has taken various actions to enhance the financial flexibility of the Group, including the deferral or reduction of non-essential capital expenditure and project expenditure; overhead and employee cost reduction initiatives across the business reflecting the changing environment including a temporary 20% reduction in fixed remuneration of senior executives, some of which will be used to seed an employee hardship and wellbeing fund.
Non-Executive Directors have also agreed to a temporary reduction of their base fees of up to 20% which will also be used to seed the employee hardship and wellbeing fund,” The company said.
