Fletcher Building to raise up to $505m

Wednesday 1st April 2009

Fletcher Building, New Zealand's biggest construction company, will raise as much as $505 million to strengthen its balance sheet and will reduce manufacturing capacity amid 'challenging' markets.

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.

At the same time, it 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.

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.

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.

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.

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. 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.

By Jonathan Underhill

Comments from our readers

No comments yet