Fletcher Building looks to raise $700 million

Fletcher Building has announced it will raise $700 million to pay back debt and improve its financial stability.

Low demand, particularly for houses and building materials, is putting pressure on the company with debt levels reaching $1.7 billion at the end of June.

It will now sell $282m worth of new shares to investment funds and $418m worth to current shareholders. It went into a trading halt on the stock exchange to do so.

In addition to money raising, Fletcher Building plans to cut around $180m in costs to better the books.

Shares in the company were $2.40 each on Monday morning, a 13 percent discount from market close on Friday.

Capital raise should give headroom – Fletchers

The company said the $700m capital raise would ensure it got through the economic downturn.

Incoming Fletchers chief executive Andrew Reding said the money raised should give the company headroom for the 2025 financial year.

“We’re experiencing volume declines of 10 to 15 percent year on year, a trend which we expect to continue for the rest of the financial year,” Reding said.

“However, it is a volatile market and we are vigilant to the possibility of further market weakness – and are aggressively attacking costs to partly offset this. We continue to see good cash flow performance, including in July and August, which is stemming from focused working capital management.

“The near term outlook is expected to remain challenging. However, our underlying business remains strong and this equity-raising further enhances our balance sheet position and ability to withstand market headwinds.”

The new shares were being sold at $2.40 each, a 17 percent discount to Friday’s closing price.

Current shareholders would be offered one new share for every four and a half they already owned.

Any shares not taken up would be allocated to those wanting more or bought by the underwriters for the deal.

Fletchers also plans $180m-worth of cost cutting for the company, scaled up from an initial budget of $120m, to reflect the volatility of the market.

How do other Fletcher deals play into the decision to raise capital?

In August, Fletchers set aside $A155 million ($NZ168m) to settle the issue of leaky pipes in West Australian homes.

Reding said quantifying that cost drove the decision to raise capital on Monday.

“As we’ve seen the volatility of the market, we’ve now done a further exercise to make that 180 million, but it is a bottom-up exercise, not just the demand from the centres. So each business unit has a granular target and map of what they are committed to achieving and they can be monitored against.”

He said the hunt for investment partnerships in Fletcher’s residential and development division was not over, but it had little impact on the decision to raise funds.

“We have some people we’re still talking to, but I don’t think that would be a quick conclusion to that process, and we’ll obviously update accordingly…

“It’s always going to be a complicated process because the number of people who could buy it in New Zealand is limited, and if it’s somebody from offshore, you’ve got OIO (Overseas Investment Office) involvement and so on. So no – very little impact on our thinking on the capital raise.”

New management

Today’s capital raise announcement showed Andrew Reding was starting to take the reigns at Fletchers after his appointment as chief executive in August.

Forsyth Barr senior analyst Rohan Koreman-Smit said the equity raise was not surprising given the new management team.

Reding said his management style was decentralist.

“It’s very much strategic business units getting as much decision-making and empowerment – at the line that serves our customers – as possible.”

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