Nufarm shares fell more than 3% on Friday to take the week’s losses to around 14% after its was placed on credit watch by ratings agency Standard & Poor’s and lost its place in the ASX 100 Index of top stocks.
The shares ended at $3.39 on Friday, down 11c on the day.
Standard & Poor’s said it had placed Nufarm’s BB long-term corporate credit rating on CreditWatch, reflecting its concerns about the company’s liquidity position and ability to improve profitability in fiscal 2011.
"The CreditWatch placement reflects our view that Nufarm’s liquidity is currently less than adequate," Standard & Poor’s credit analyst Richard Creed said in a statement on Friday.
"Resolution of the CreditWatch is contingent on Nufarm obtaining near-term support from its lenders."
Nufarm shocked investors on Wednesday by revealing net debt had blown out by $170 million in the space of two weeks in July.
It said that net debt would be about $620 million for the year to July 31, compared to its estimate of about $450 million provided on July 14.
The higher debt level placed Nufarm in breach of its financial obligations to lenders relating to gearing levels, but the company said the breach would be covered by waivers currently being negotiated with its bankers.
Standard & Poor’s said support from Nufarm’s lenders could come in the form of covenant waivers, and finalisation of terms of a new funding package.
"However, if the company cannot access adequate levels of funding, the rating may be lowered by more than one notch," the agency said.
In order for the rating to stabilised, Nufarm would be expected to demonstrate that it can increase earnings in fiscal 2011, it said.
"The company’s performance for the half year to January 31, 2011 will be an important milestone for re-establishing credibility of the profit potential of Nufarm, notwithstanding the seasonality of the business with its strong bias to second-half earnings."
The ratings warning comes as Nufarm is facing escalating threats of litigation from two legal firms building class actions against the group.
Slater & Gordon and Maurice Blackburn claim they have been approached by institutional investors to investigate possible actions after Nufarm issued a profit downgrade in July that caused its share price to slump.
The sharp decline has resulted in Nufarm’s removal from the S&P/ASX 100 index following the latest quarterly rebalance, which was also announced yesterday.
Friday’s rebalancing of the major indices saw Sydney airport operator MAp Airports emerge as an early beneficiary with inclusion in the index of Australia’s 50 largest companies.
MAp’s stock rose 10c to $3.18 on Friday after S&P announced it would replace Telecom Corp of New Zealand in the index.
MAp now has a market value of just under $6 billion, which means that when it is included in the middle of this month, it will probably rank among the 30 largest companies in the index.
In its capacity as a debt rating agency, S&P also said it had put Nufarm on ”Credit Watch with negative implications”, a move that is usually a forerunner to downgrading the company’s credit-worthiness.
Uranium miner Energy Resources of Australia, which is controlled by Rio Tinto, also lost its place in the S&P/ASX100.
That was after the stock’s price has weakened with a fall in interim profit and an indifferent outlook thanks to weak production and prices.
Ten Network and Macarthur Coal also join the ASX100 from the middle of this month.
There will be only one change to what has become the market’s main global index, the S&P/ASX200, with Biota Holdings dropped for Melbourne miner, Oceana Gold.
