ANALYSIS: Nuplex rights issue sets benchmark for indebted NZ companies

Friday 20th March 2009

Nuplex Industries was forced to offer a deep discount and increase the scope of its rights offer to win over shareholders, in a balance sheet strengthening exercise that will set the benchmark for other indebted companies.

Shares of Nuplex tumbled 49% to 55 cents, a record decline, after it bowed to shareholder pressure and amended its capital raising plans this week. Shareholders will get seven new shares for each one held at 23 cents apiece, raising $132.8 million, Nuplex said in a statement. It had initially sought to raise $110 million via a placement and rights offer, reportedly at more than 50 cents a share.

"Any company that may be close to breaching its covenants will be watching this with interest," said Rickey Ward, equities manager at Tyndall Investment Management. "The market decided that while $110 million may be enough, you want to provide some headroom, to remove the chance they have to come back to the market again."

Fisher & Paykel Appliances is among companies that are contemplating tapping investors for equity capital after it gained waivers from its banks and agreement for short-term loan facilities. Like Nuplex, FPA has had to contend with a rising value of overseas debt as the kiwi dollar weakened and demand for its products fell. FPA's stock has tumbled 69% this year while Nuplex is down 64%. Among stocks on the NZX 50 Index, only APN News & Media has fallen that much in 2009, falling 61%.

"The capital of $132.8 million to be raised from the rights issue will be sufficient to meet the company's short and medium term capital needs in the current economic and trading environment," Nuplex said.

Tyndall's Ward said his firm's funds don't currently own Nuplex and he declined to say he would be enticed to buy the stock to benefit from the rights offer.

FPA's gained a waiver to its debt cover ratio and interest cover ratio covenants for the term of the interim facilities, which run through April 30.

The agreements buy F&P Appliances more time to negotiate with its banking syndicate to refinance all of the group's bank debt, with the aim of completing the new arrangements by the end of April. Total debt is expected to reach about $570 million by March 31.

Stephen Walker, head of asset management at Goldman Sachs JBWere, said FPA's debt issues are more temporary in nature than Nuplex's, with debt forecast to halve through this year, property assets it can sell and inventory it can run down.

Nuplex today said the rights offer will result in 577.6 million new shares being issued. It abandoned a plan to raise some of the funds via a share placement after investors balked at the terms. Existing shareholders wanted the right to participate in the capital raising and were concerned a placement would dilute the value of existing holdings.

First NZ Capital has agreed to fully underwrite the issue, for a fee equal to 2% of the amount raised, and retains a call option for five days after the transaction requiring Nuplex to make a top-up placement of $22.8 million, or 15% of the shares on issue, at 23 cents apiece.

Nuplex's existing shares trade ex-rights on April 2. The offer closes on April 20, with the allotment of new shares on April 23.

A weaker kiwi dollar drove up the value of its overseas debt while earnings fell. That combination of events pushed Nuplex's senior debt cover ratio to above the covenant requirement of 3.00 times.

"The world has changed very quickly and the magnitude of the slowdown has caught a number of people by surprise," Tyndall said.

Nuplex's banks this week agreed to revise the terms of its senior debt cover ratio, waiving the requirement that it be no more than three times in the period up to April 30 and allowing the ratio to reach 3.5 times between May 1 and June 29, easing back to 3.25 times from June 30 to September 29 and back to three from September 30, according to a company statement today.

The banks imposed conditions on the agreement, including capping dividend payments at 60% of net profit, applying any assets sales proceeds over $2 million to debt repayment and taking a general security over the company's Australian and New Zealand assets.

Nuplex bank debt facilities total A$350 million and following the capital raising the total amount drawn will be about $240 million, it said.

The rights offer requires NZX and ASX approvals and agreement from the Overseas Investment Office.

By Jonathan Underhill

Comments from our readers

No comments yet