UPDATE: Fletcher Building taps investors for $505m as shares rally

By Paul McBeth

Wednesday 1st April 2009

Fletcher Building aims to tap investors for as much as $505 million, taking advantage of recent gains in its share price to strengthen its balance sheet.

Fletcher's stock was halted for the capital raising. The company will raise $405 million in an underwritten placement to institutions and a further $100 million by way of a share purchase plan for existing shareholders, with a top-up of as much as $20 million.

"It's probably a decent-sized discount - enough to have it well supported," said Mark Lister, head of research at ABN AMRO Craigs. It's a much better level than the "whopping huge discount" Nuplex Industries offered last month, he said.

Shares of Fletcher Building have rallied about 23% in the past month, helped by speculation the construction industry in Australia will get a lift from government incentives and grants for home owners, while the US housing market may have reached its trough. Raising funds now may also help Fletcher get a head-start over an increasing number of Australian firms expected to seek more funds from equity raising, Lister said.

The plan comes "at a time when they can get a decent level of support from Australian shareholders" before more companies in Australia begin to raise capital, Lister said.

Australian utilities trust DUET Group announced yesterday it aims to raise A$264 million to bolster its balance sheet, while pipe maker and plumbing supplier Crane Group successfully raised A$40 million last week.

Chief executive Jonathan Ling said Fletcher's capital position is "strong" though it is "prudent to strengthen the balance sheet further and pro-actively adopt a more conservative capital structure."

"There is a need to ensure acceptable shareholder returns are maintained if reduced activity levels persist, and to this end we will be seeking to implement further restructuring and re-sizing initiatives across the business," Ling said.

Fletcher may rationalize and streamline manufacturing plants at a cost of up to $145 million, write-off a $50 million US tax benefit related to Formica and take an impairment charge of up to $150 million over some assets, it said today.

Since the first-half results were released in mid-February, "operating conditions in key markets have remained challenging and in some cases have deteriorated further," the company said in a statement. Housing demand has remained weak in New Zealand and Australia, trading in Europe has deteriorated, especially in eastern Europe, while in the US, conditions have stabilized "at a very low base."

Fletcher last month posted a 27% drop in first-half profit as demand sank. At the time, it said its balance sheet is strong enough to weather the downturn. Net income fell to $172 million from $235 million, even as sales climbed 6% to $3.76 billion. It slashed its dividend to 28 cents from 48 cents the previous year.

Fletcher today reiterated its February forecast for profit before one-time items to be at the lower end of analysts' estimates at that time, which was between $289 million and $336 million.

ABN AMRO Craigs will retain its forecast of $291 million, which falls at the bottom of the range, Lister said.

The placement to institutions will be at $5.35 a share, which is 11% below yesterday's close. The stock traded at $6.20 today before being halted for the announcement, having climbed from less than $5.10 in early March.

Fletcher will raise up to $100 million via its share purchase plan for shareholders, underwritten to $60 million. Those shares will be offered at the lower of the placement price or a 3% discount to Fletcher's trading level over a set period.

The company gained a waiver from the NZX allowing shareholders to subscribe for up to $11,500 worth of shares, from the current ceiling of $5,000. And Australia investors can subscribe for up to A$9,000 of shares.

The company suspended its dividend reinvestment scheme for the first-half payment, with all shareholders to be paid out in cash, it said.

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