Is the financial health of troubled Kiwi building products and construction company Fletcher Building worse than understood by the market?
The company yesterday extended a trading halt on its shares for a further 48 hours as it finalises the extent of the mounting losses in its troubled building and interiors division.
It also revealed on Monday morning that it had already started talks with its bankers in relation to breaches of debt covenants, a bad sign and indicative of a loss much larger than the$UNZ160 million estimate late last year by an early review of problems with two projects.
Talking to the banks means Fletcher will need a revamp of its loans to cure the breach – but this will come at a cost of either higher interest rates, or cash raised from asset sales or an issue to shareholders (which would have to be deeply discounted). Fletcher said that a trading halt which had been due to lift on February 12 on both the New Zealand and Australian stock exchanges would now stay in place until February 14.
The worrying part of yesterday’s short statement was the admission that it was not yet in a position to make any announcement on its Building and Interiors (B&I) unit, which is the financial black hole threatening the company’s future.
A review by accounting firm, KPMG last October forecast a $NZ160 million loss, after major cost blowouts in the previous financial year on two key projects, SkyCity’s New Zealand International Convention Centre (ICC), and the Christchurch justice and emergency services precinct.
Fletcher reported losses of $NZ204 million in this business for the year to June 3, 2017. Operating earnings before significant items fell 23% to $NZ525 million – and net after-tax profit dropped 80% from $NZ462 million to $NZ94 million including the losses in the troubled division.
Fletcher Building told shareholders last Thursday morning that although the review was ongoing, the losses were going to be larger than previously flagged.
This time last year, Fletcher Buildings’ share price was over $NZ10. They closed at $NZ7.70 last Wednesday. Another large fall can be expected when trading finally resumes.
