Fletcher achieves $725m raising for debt reduction

There would have been some sighs of relief in the Fletcher Building boardroom yesterday, as the company announced it has reached its $750 million equity raising target. This paves the way for a reduction in debt levels and will help get the embattled construction company back on track financially.

Fletcher Building sold 20.2 million shares for $6.45 apiece under its retail shortfall bookbuild. This is a premium to the entitlement offer ($4.80) but a discount to the trading price of the shares - $6.56 at the market close yesterday.

Chief executive Ross Taylor says the completion of the one-for-4.46 pro-rata offer, which netted $725 million after costs, means the company "can now significantly reduce group debt and improve the capital structure of Fletcher Building". The company has struggled recently after racking up $660 million in losses from construction cost over-runs in its Building + Interiors division.

"This puts us in a stronger position to focus our portfolio and pursue a new group strategy, and we look forward to briefing the market on this in more detail in June,” Taylor says.

Even after this repayment, based on the company’s March 31 financial position, Fletcher Building's gross borrowings will still be $1.79 billion, the company says. Its total available debt facilities will be $2.7 billion.

Fletcher says the retail bookbuild was well supported by institutional shareholders and new investors. Eligible retail shareholders who elected not to take up their entitlements and ineligible retail shareholders will receive $1.65 for each entitlement not taken up by them.

The sale of shares to retail investors follows an earlier sale to institutional investors and completes Fletcher's $750 million equity raising. Fletcher last month unveiled a $1.25 billion refinancing plan including the share sale. It also announced a $500 million standby banking facility that could be used to repay noteholders in the US private placement market. However, the company said yesterday it has agreed revised terms with holders of its  US notes and has cancelled the $500 million standby facility.

As part of its restructuring plan, the company last month announced plans to sell its international Formica and steel roofing tiles businesses, retreating to its main New Zealand and Australian markets.

Fletcher dumped its former chief executive Mark Adamson last year in the face of the Building + Interiors unit losses, and in February this year chair Ralph Norris said he would step down to take responsibility for the company's poor performance.

Meanwhile listed investment fund Kingfish has gone out to bat for Fletcher Building, saying negative headlines in the media recently have overshadowed a business with "healthy prospects" and a new management team that is "a catalyst for change".

The fund, overseen by Fisher Funds Management, added Fletcher to its portfolio in April, when the shares slumped to their lowest levels in almost six years. 

"The company has made too many newspaper headlines with delays on major construction projects and the significant losses reported by its B+I unit," said Sam Dickie, senior portfolio manager at Fisher Funds. "[While] it is fair to say this has been a company with a chequered track record, facing a number of challenges, we believe the headlines, and the fallout from some of Fletcher’s poor strategic decisions, are hiding a business that has healthy prospects. New management is the catalyst for change."

Among stories reflecting badly on Fletcher, an NBR column was headlined: 'Fletcher Building disaster highlights gaping hole in boardroom skill set' and referred to 'The train wreck that is Fletcher Building'.

Dickie said that after watching Fletcher for the past 12-18 months, "we believe a rare attractive opportunity is emerging which justifies an investment."

Fletcher Building's shares have fallen 9.8 percent this year.

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