Trans-Tasman building products giant Fletcher Building (ASX:FBU) has confirmed weekend reports that it is looking to raise NZ$700 million (A$641 million) to reduce debt and provide greater financial stability. It plans to raise NZ$282 million from investment funds and NZ$418 million from current shareholders. The company has entered a trading halt on both sides of the Tasman to facilitate the first part of the fundraising.
In addition to raising funds, Fletcher Building is planning around NZ$180 million in cost cuts for the 2025 financial year. The combination of a large, dilutive capital raising and significant cost savings is always indicative of a company’s finances being under immense pressure.
As of June 30, FBU reported having NZ$311 million in cash and undrawn finance facilities of NZ$760 million, resulting in a total of NZ$1.1 billion in available liquidity—its debt has a three-year tenor. While this sounds like a solid liquidity buffer, it clearly was not deemed sufficient for the company’s survival.
There must have been more recent pressures from weak trading conditions—especially in New Zealand—that compelled the board to pursue the tried-and-true approach of quick capital issuance and cost cuts to reassure investors of its viability. The shares will be issued at NZ$2.40, down 17% from Friday's NZX close of NZ$2.89. The shares are down 42% so far in 2024 and reported a significant impairment write-down and losses of NZ$227 million for the June 30 financial year.
The troubled building products and construction company is grappling with poor demand, as house sales have declined. "The equity raise is being undertaken as a prudent measure to strengthen the company’s balance sheet and improve financial stability and resilience in the current challenging environment," it stated.
Fletcher expects market conditions to eventually recover, but an improved financial position would help it focus on operational performance, reduce pressure to sell assets, and maintain its investment credit rating.
Fletcher plans to issue 292 million new shares, or 37% of the current issued shares, which represents a significant level of dilution for existing holders. This, in itself, is a clear indication of the pressing need for new capital from FBU.
