KEY POINTS:
Nuplex shares are being hammered on the stock exchange today, after the company confirmed it was talking with bankers to get debt commitments loosened to ensure it wasn't breaching them last year.
The resin and chemical maker was asked by the stock exchange to explain the 25 per cent fall in the company's share price this week.
Today the company's share prices has fallen another 14per cent, down 27 cents to $1.58.
"We are not aware of any specific reason why Nuplex's share price has fallen since trading commenced on Monday 16 February," said company secretary Graeme Storey in a written response to the NZX.
"We might speculate that market participants see some similarities between Nuplex and Fisher & Paykel Appliances in that both companies are carrying significant levels of debt in overseas currencies and have manufacturing businesses affected by a global reduction in demand and the weakening of the New Zealand dollar against overseas currencies in which earnings are denominated."
The difference, said Storey, is that Nuplex earnings are "tracking in accordance" with guidance given to the market on February 2.
On that day Nuplex said trading profit (earnings before interest, tax, depreciation and amortisation) for the first half of the 2009 financial year was expected to be $42.5 million, compared with guidance in November of between $45 million and $50 million.
Storey said today that the company was, however, aware of speculation from share brokers First NZ Capital that the company might have breached banking commitments relating to its debt cover.
This is the amount of debt divided by a company's earnings before interest, tax, depreciation and amortisation.
Storey confirmed that Nuplex was talking with its bankers about loosening its debt covenants - unless this was done, it would have been in breach of them late last year.
"Those discussions with Nuplex's banks are continuing on a daily basis."
Nuplex had not breached its responsibilities to keep the market informed, said Storey. Subject to credit approval being given, Nuplex expected the banks to loosen its covenants to "enable compliance at 31 December 2008."
"The speculation from First NZ Capital that there may be a breach of bank facility covenant is not, in fact, inaccurate so the market is not misinformed," Storey told the NZX.
Asking the banks to loosen the covenant did not count as "material information" since lower expected earnings from the company had already been disclosed.
Another reason the discussion with banks had not been disclosed was because it was confidential and was currently "an incomplete proposal".
Revealing the earnings forecast downgrade earlier this month, Nuplex said European demand had fallen substantially, in part because of inventory reduction programmes by customers, which hit performance in November and December.
The company said conditions worldwide remained generally soft, with the worst affected sectors exposed to high levels of discretionary spending, such as new automobile production and the leisure segments of the composites industry, including boats and swimming pools.
