Nuplex shares tumble on talks with banks over cover ratios

Thursday 19th February 2009

Shares of Nuplex Industries tumbled after the manufacturer of resins and specialty chemicals said it is in talks with its banks to ease terms of its bank facilities.

The stock shed 15% to $1.58, bringing its decline this year to about 40%. The Auckland-based company will breach the terms of its lending covenants unless its banks loosen its senior debt cover ratio requirements, Nuplex said in a statement today.

Nuplex is pacing a slide in the shares of companies that have expanded in the Northern Hemisphere, where the downturn has been more severe, taking on debt to buy assets at higher prices that they may pay today. Fisher & Paykel Appliances has slumped 52% this year and Rakon has declined 31%.

"Investors are nervous about companies that have a lot of debt at the moment," said Brian Gaynor, who helps manage $250 million at Milford Asset Management. "They know banks are acting completely differently than they were two years ago."

Nuplex on February 2 said a drop in demand in Europe and one-time costs meant first-half earnings before interest, tax, depreciation and amortization would be $42.5 million, with a similar result for the second half of the year. That's below its November prediction of as much as $50 million in the first half and $60 million in the second.

Shares of Fisher & Paykel Appliances tumbled to a record low this week after then whiteware manufacturer said it may have to sell shares to bolster its capital as debt levels rise and profit growth stalls. It said "unprecedented and difficult trading conditions have been experienced in all markets."

Today, Nuplex said both companies are being hit by a similar drop in sentiment.

"Both companies are carrying significant levels of debt in overseas currencies and have manufacturing businesses affected by a global reduction in demand and the weakening of the New Zealand dollar against overseas currencies in which earnings are denominated," company secretary Graeme Storey said in a statement today.

Still, Nuplex was tracking in accordance with its guidance earlier this month and doesn't have an update, Storey said in answer to a stock exchange query about the share slide.

The request to the banks to ease the conditions of its facilities "is confidential and currently an incomplete proposal," he said.

By Jonathan Underhill

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