BlueScope Steel, which will get hundreds of millions of dollars money under the carbon tax in compensation and free permits for the steel industry, has surprised investors by launching an ”accelerated "fund raising to cut debt.
It’s no small amount, it wants to raise $600 million to pay down a soaring debt bill that the company though it had under control.
It’s being done at a 34% discount to the pre-announcement share price (which in turn has halved since July).
That big discount is a sign of the desperation at the company for new capital, and quick.
The reported issue takes the amount this company has drained from shareholders since December 2008 to more than $2.5 billion.
A combination of poor profits, the high value of the Australian dollar, weak demand and restructuring costs aimed at trying to right-size the group, saw a 50% blow out in the company’s debt burden in four months.
The company has already announced plans to cut exports close a blast furnace and other facilities and sacked around 1,000 employees in NSW and in Victoria.
According ‘to some analysts, BlueScope is going to get hundreds of millions of dollars of benefits from the carbon tax.
Based on their 2010 emissions and a starting price of $23 a tonne, the company could get around $80 million in the first three fixed price years of the scheme in free permits.
BlueScope will also have access to the $300 million adjustment fund and the Federal Government brought forward $100 million of that a couple of months ago into this year.
But to get that, the company has to remain alive and in business, and out of the hands of administrators.
So yesterday’s fund raising, which was revealed to the market before trading today and came five days after the company held its AGM last Thursday and didn’t mention the rapidly rising debt in the prepared speeches by the chairman and the CEO, even though the statement clearly illustrates the problem.
BlueScope said its net debt had increased to $1.555 billion by October 31, up from $1.068 billion at June 30.
With that sort of increase, you would have thought that 17 days after October 31, the board and management would have been in a position to reveal the problem and talk to shareholders about it at the AGM last week.
But not a word at the meeting which was largely taken up with shareholder objections to the payment of nearly $3 million in bonuses to management, despite BlueScope losing just over a billion dollars in the June 30 year.
The board and chairman Graham Kraehe spent time defending the bonuses and reaffirmed the forecast for a big loss for the December half year at least, as they were entitled to do.
But you would have thought that a 50% jump in debt would have necessitated a mention to the company’s owners.
But no word of the growing need for new capital which suddenly became a problem so large that a $600 million "accelerated" issue at a huge discount is now needed urgently.
(The lack of a mention can be explained by the anger from many shareholders at the bonuses and the loss. News of a big rise in debt would have added to the shareholder unease.)
The fully underwritten 4-for-5 entitlement will be made at 40c, compared to Monday’s closing price of 61c.
BlueScope raised just $1.4 billion in a similar issue in May and June of 2009.
That was also designed to restructure the company’s debts as well.
That issue came only five months after $550 million was raised from investors in late 2008.
The contrast between BlueScope’s AGM and then the issue news and with the AGM of OneSteel is telling.
On Monday OneSteel explained its cuts and other moves to lower costs with an intelligent explanation.
Chairman Peter Smedley said there was nothing in the company’s finances there was "nothing before your Board that would see us considering raising further debt or equity, or that puts the company in a position of having concern with our borrowing covenants".
Obviously OneSteel is in better health than BlueScope.
Having a growing iron ore export business helps at OneSteel, even it suffering a temporary problem from the recent fall in world prices.
But one can’t help but feel the management at OneSteel (and the board) is better than at BlueScope.
