Nuplex on standby for investors' verdict

Financially troubled Nuplex Industries should know by the end of today how supportive its institutional investors will be of its plan to raise $110 million to help pay back its bankers.

The plastics and resin-maker announced yesterday that it had reached an agreement with its four banks to amend the terms of its senior debt cover ratio covenant.

It immediately went into a trading halt to begin the book-building process.

The process, expected to be completed by market opening tomorrow, will give institutions and high net worth investors a chance to say how much they would be prepared to pay for new shares in the company.

That figure is expected to be significantly less than the $1.07 share price the company last traded for on Friday.

Forsyth Barr analyst John Cairns said the success of the capital raising would come down to pricing.

"It has to be sufficiently attractive to investors but offsetting that is the dilutionary effect."

As the institutional placement is likely to exceed 15 per cent, the capital raising will also have to receive approval from shareholders at a meeting in Auckland on April 3.

Cairns believed shareholders had no choice but to vote for the capital raising.

"The company really needs this to continue in business."

Nuplex group managing director John Hirst said he was confident of gaining shareholder support.

"The business environment we are operating in is difficult, demand is down, credit is tight. But we have a business that remains profitable - people seem to have forgotten that."

"Clearly we can't expect to be as profitable as we once were as demand mains subdued but once demand comes back we will be off again. I think shareholders will take that into account."

Nuplex's share price plunged by 25 per cent over three days in mid-February, sparking an NZX inquiry which forced the group to reveal it was in talks with its bankers.

The company had hoped to finalise discussions in time for its interim result on February 26 but was unable to do so.

Its half-year profit dropped 76 per cent to $5.96 million and the company suspended its dividend to try and repay debt levels which jumped up because of the falling New Zealand dollar.

Its earnings before interest tax, depreciation and amortisation (ebitda) were down to $43.3 million resulting in the breach of its senior debt cover ratio covenant of three times ebitda.

Yesterday the company said it had reached a deal to waive the covenant until April 30, increasing it to 3.5 times between May and June 29, before dropping it to 3.25 times from June 30 and September 29.

After September 30 it would drop back to three times ebitda.

But it will also have to meet stringent terms to get the agreement, including raising capital to reduce its $350 million in bank debt and capping dividends at 60 per cent of net profits for the year ending June 30.

Hirst said the company was comfortable with the terms and the new covenants and said he was very mindful of the fact that many retail shareholders relied on dividends and the company wanted to return to paying them as soon as possible.