Tuesday 17th April 2018
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Fletcher Building drew down $280 million against its bank facilities in the first three months of 2018, pushing total bank debt to $714 million, the amount it now plans to repay through a discounted stock offer to strengthen its balance sheet.
Repayment of bank debt is the only change Fletcher sees in its funding facilities, according to a presentation today. The building products and construction company assumes no change in US private placement notes at $1.1 billion, other capital notes at $566 million and other debt of $102 million. Net debt would fall to $1.5 billion after the capital raising from $2.26 billion as at March 31.
The shares are halted for the institutional leg of the $750 million pro-rata one-for-4.46 accelerated entitlement offer at $4.80 a share, or 23 percent below its last trading price of $6.27. Proceeds from the offer will be used to repay existing debt, the company said. The offer is fully underwritten by Macquarie Bank.
The capital restructure would see gearing drop to 27.8 percent from an estimated 40.9 percent at March 31. Net debt to earnings (ebitda) would drop to 1.6 times from 2.4 times. The company aims to "reduce leverage to a more conservative period, more in line with peers," it said today.
Fletcher withdraws into the ANZ region under its strategic plan, putting up for sale international businesses Formica and Roof Tile Group. It fights to preserve market power, revives its construction business and holds onto residential development and concrete. To reach agreement from its USPP noteholders, putting them in tune with the banking syndicate that has already agreed new terms, Fletcher's equity would rise to $3.99 billion from $3.3 billion, a gain of $725 million from the placement (net of costs). Net debt falls by the same amount to $1.54 billion.
Fletcher hasn't released details of its lending terms or how much more it would have to pay to remedy a default although chief executive Ross Taylor has said the company may pay higher interest rates as a result of the covenant breaches.
"Fletcher has got themselves into a lot of problems and they need to get out of them," Paul Richardson, chief investment officer at Mint Asset Management, said today. "The USPP holders, not surprisingly, are standing up for their rights."
Fletcher's stock has been buffeted the past week by rumours that the company has become a takeover target, with Wesfarmers reportedly among interested parties. Richardson said regulators may want to take a look at some of the speculation to ensure it hasn't amounted to market manipulation. An Australian fund manager disclosed a 5.1 percent holding of the stock last week and says on its website the company fits the bill among its beat-up stocks.
Today Fletcher said Wesfarmers didn't hold any shares and Taylor said on a call that not being the target of a takeover "is one less moving piece. It's easier not to have a takeover going on as well in the background," he said. "I would not be lying if I said I think my life's a bit easier without it."
Fletcher reiterated its guidance for full-year 2018 earnings before interest and tax to be $680 million to $720 million, with the loss from its Building & Interiors unit affirmed at $660 million.
Fletcher said it has obtained a new $500 million standby facility that runs until at least January 2020 with ANZ Bank, Mitsubishi UFJ Financial Group and Westpac Banking Corp, and has obtained commitments "from the required majority of lenders to a permanent solution of the current breach under the syndicated facility agreement". At the same time ANZ, MUFG Bank, Westpac with the addition of HSBC have agreed terms for the current breach of the facility - meaning the amended terms are carried by majority lender support.
Also announced today is the sale of Formica and Roof Tile Group, the major operations outside of New Zealand and Australia, but Taylor said on a call that asset sales may take 12 to 18 months.
Taylor said the company would aim to resume dividends in FY 2019.
Formica and Roof Tile Group fall within Fletcher's international division along with its Laminex business in Australia and New Zealand. In February, Morningstar valued the international division at $1.36 billion and Formica alone at $730 million.
Fletcher paid US$700 million to buy Formica Corp from private equity owners Cerberus Capital Management and Oaktree Capital Management in 2007.
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