Rights issue hews into Elders debt
The Age
Tuesday September 1, 2009
RURAL services group Elders hopes to secure its future later this week through an institutional-backed $400 million-plus capital raising that will trigger a new financing deal with its bankers.Having brought in insurer QBE as a cornerstone investor through the sale of its insurance businesses five weeks ago, Elders yesterday began its long-awaited recapitalisation, which is believed to involve a one-for-one rights issue to shareholders.The offer of new stock is believed to have been struck at a discount of more than 20 per cent to the company's last traded share price of 39. Elders' shares were put in a trading halt yesterday after it announced that the refinancing was under way. It is due to be completed by tomorrow at the latest.QBE, which recently bought all Elders' underwriting business and a 75 per cent stake in its insurance agency operations, will take up to $45 million of new shares as part of the two companies' wide-ranging collaboration announced at the end of July.The proceeds from the share raising should cut Elders' net debt to about $200 million once the proceeds of the QBE deal and yesterday's sale of Elders' hardwood timber processing operations to Gunns for $100 million are added in.The disposal of ITC Timber is the latest in a series of divestments undertaken by new chief executive Malcolm Jackman, who was given the job late last year of saving Elders from collapsing under $1 billion of debt.Elders' next set of accounts for the 12 months to June 30, which will be released at the same time as the recapitalisation is completed, are due to show debt of $800 million for the year. But that will be before the benefits of the latest sales and the injection of new equity.That new cash will help Mr Jackman seal a long-term lending arrangement with Elders' banks after a deadline for the expiry of its current borrowing facilities was extended until the end of this month to allow him to complete the refinancing.With a new debt-to-equity ratio of about 27 per cent and additional capital confirmed, Elders will be in a position to grow its remaining agribusiness and distribution operations.However, it still has to sort out its interests in forestry managed investment schemes, which have been affected by the fallout from the collapses of Timbercorp and Great Southern, and find a buyer for its automotive parts division.Elders is likely to announce a net loss of $110 million for the full year after impairment charges of at least the same amount. Underlying profit is set to come in at $45 million.KEY POINTS–Elders expects to raise $400 million.–Raising is at 20% discount to last share price of 39.
© 2009 The Age
Share This