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22 Feb 2018 16:00
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  •   Home > News > Business

    Fletcher working to get lenders onside

    Fletcher Building is likely in urgent talks to avoid issuing new capital after expecting further "material losses" at its building and interiors business.

    Fletcher Building, which expects to breach its debt covenants because of further "material losses" at its building and interiors business, is probably in urgent talks to avoid issuing new capital.

    Auckland-based Fletcher had net debt of $1.95 billion as at June 30 last year.

    Its biggest source of debt funding is the private placement market at about $1.26b and it had $389m in loans via its syndicated revolving credit facility.

    Un-drawn bank facilities stood at $536m.

    The company had its stock and capital notes halted from trading on Thursday, pending a review of key projects at its buildings and interiors - known as B+I - as it prepares its first-half accounts.

    The trading halt will be lifted at the start of trading next Monday, by which time it will have made the results of the review public, it said.

    Both the bank facility and private placements have borrowing covenants relating to net debt to earnings before interest, tax, depreciation and amortisation and interest cover.

    The debt-ebitda ratio stood at 2.7 times last June, above Fletcher's 2-to-2.5 times target but within its covenants.

    "All that debt discussion will be happening now," said James Lindsay, senior portfolio manager at Nikko Asset Management.

    "I would say an equity raising would appear to be reasonably likely."

    He said Thursday's announcement was "incredibly disappointing from the company's point of view - this is the fourth downgrade to earnings".

    Working through its covenant obligations would be a significant exercise because some contain provisions that are triggered by others being breached and the US private placement market is known to include debt being callable in the event of a breach.

    Fletcher shares last traded at $7.77 and have tumbled 23 per cent in the past 12 months.

    Over the past five years, as the S/NZX 50 Index has climbed 94 per cent, Fletcher fell 13 per cent and was seemingly unable to capitalise on New Zealand's building boom.

    In October, Fletcher chair Ralph Norris apologised to shareholders for the company's mistakes as the company took a further $125m provision against problematic construction contracts and said its B+I unit would report a full-year loss of $160m.

    Losses on its problematic Auckland Convention Centre and Christchurch Justice Precinct contracts accounted for about two-thirds of the $292m loss recorded for B+I in 2017.


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