Fletcher to raise $750m from rights issue and sell Formica, Roof Tile Group

Fletcher Building says it will raise $750 million in fresh equity through a fully underwritten one-for-4.46 rights issue priced at $4.80 a share and is planning to sell its Formica and Roof Tile Group businesses.

The company says the proceeds will strengthen its balance sheet and “better enable it to execute its immediate and longer-term strategic objectives.”

The issue price compares with Monday’s closing price at $6.27, representing a 23.4% discount.

Fund manager Nikko Asset Management has previously said Fletcher needed to either sell assets or raise equity to strengthen its balance sheet following escalating losses from its Building + Interiors unit, which builds high-rise developments.

Nikko had earmarked Formica as a likely asset for sale.

The company has also announced it will focus its activities on New Zealand and Australia and will start divestment processes for Formica and Roof Tile Group.

Fletcher says it will conduct book-builds to sell any shortfall and that the proceeds will be used to repay existing debt.

Fletcher says it has obtained commitments from the majority of its lenders to a permanent solution of its breach under its syndicated facility agreement and has established a new standby facility of $500m with ANZ, MUFG Bank and Westpac.

Discussions with its US private placement (USPP) lenders are continuing and “Fletcher Building’s objective and expectation is that it will achieve a mutually acceptable outcome.”

At the end of March, Fletcher said it had gained an extension to waivers from its banks and USPP lenders to the end of May.

Although it doesn’t expect to need the new standby facility, it and the rights issue proceeds are sufficient to redeem all its USPP notes and to cover any associated costs.

Fletcher says there is no change to its estimated operating loss for B+I of $660m in the year ending June, or for its forecast of earnings before interest and tax (ebit) of $680-720m excluding the B+I loss.

The company also says that Wesfarmers has confirmed it doesn't own any Fletcher shares.

An unsubstantiated report in the Sydney Morning Herald on Friday propelled Fletcher shares from $5.84 on Thursday to $6.34 at Friday's close.

More to come