Tuesday 17th April 2018
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Fletcher Building plans to raise $750 million in an underwritten offer to shareholders at a deep discount and sell its Formica and steel roof tile businesses, strengthening its balance sheet and gaining support from its banking syndicate after a breach of lending conditions.
The pro-rata one-for-4.46 accelerated entitlement offer is at $4.80 a share, or 23 percent below its last trading price of $6.27. The stock was halted for the capital raising. Proceeds from the offer will be used to repay existing debt, the Auckland-based company said in a statement.
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". The standby facility may only be used to repay holders of its $1.1 billion of notes in the US private placement market, who have yet to agree to new terms following the covenant breaches.
Discussions with noteholders in the USPP market "are ongoing and Fletcher’s objective and expectation is that it will achieve a mutually acceptable outcome," it said. "While not expected to be needed, proceeds from the offer and standby facility are sufficient to redeem all USPP Notes and pay associated costs if required."
It expects to reach an agreement with noteholders by May 31. Costs to repay the USP notes is estimated at up to $125 million. Fletcher's net debt would reduce to $1.5 billion from $2.26 billion as at March 31, it said.
Following the share offer, Fletcher said it expects normalised leverage to reduce to 1.6 times, at the lower end of the company’s revised target range of 1.5 times to 2.5 times, it said. The offer comes as a result of the company's strategic review, undertaken by new chief executive Ross Taylor.
"While work remains to be done to complete the strategic review, the key principles have been approved by the board," the company said. "Fletcher Building will focus its activities on New Zealand and Australia, and will therefore undertake divestment processes for its Formica and Roof Tile Group businesses."
“An outcome of the work that we have completed to date on the group strategy is that it is now appropriate to strengthen our balance sheet," Taylor said. "Reducing our net debt also provides us with the opportunity to undertake divestment processes for Formica and the Roof Tile Group on terms that should maximize shareholder returns."
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.
The institutional entitlement offer will be made today and tomorrow while the retail part of the offer will open on April 23.
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