Nuplex Plan B sends shares tumbling

Chairman Rob Aitken said the company had increased the level of the capital raising in order to ensure the deal went ahead.

Nuplex has ensured it will be able to keep its bankers happy - but at a huge cost to shareholders.

The largest resin and chemical manufacturer in Australasia yesterday announced a seven-for-one rights issue to raise $132.8 million at 23c per share.

The rights issue has been fully underwritten by First NZ Capital which means even if shareholders do not take up the right to buy the extra shares they will be bought by First NZ or an institutional sub-underwriter.

The move means Nuplex will be able to satisfy an agreement reached with its banks on Monday to pay down a rising debt level which has seen it breach its senior debt cover ratio.

But existing shareholders will have to front up with $1.61 for every share they own in order to just maintain their current share in the company.

Those who can not afford to take it face a major dilution of their ownership as the company will increase its number of shares from 82 million to over 660 million shares through the rights offer.

The news of the deal dealt the company's share price a blow as it came off a four-day trading halt put in place to enable the company to enter into a book building process with institutions and habitual investors to set the price and terms of the capital raising.

Nuplex shares initially plunged more than 70 per cent, falling from $1.07 to 35c in early trading before coming back up to close on 51c.

That wiped $46 million off the value of the company leaving it with a market cap of $42 million.

The final deal is vastly different from its initial plans. On Monday, Nuplex said it would raise $110 million, firstly through an institutional share placement and then through a rights issue to existing shareholders.

But it was unable to secure enough support from institutions to get the placement to go ahead and was forced to raise the amount of capital amid fears it would have to go back to the market a second time in less than a year. Chairman Rob Aitken said the company had increased the level of the capital raising in order to ensure the deal went ahead.

"In a nutshell, it was increased to make it happen."

Aitken said the initial $110 million had been required by the banks but it had "appeared" the company would not have gained the support of its institutional investors without increasing it further to the $132.8 million.

Aitken said despite concerns from institutions that the company would have come back to the market to raise more money in six to 12 months, Nuplex had not planned to.

"It certainly wasn't our plan," he said.

Asked why the placement had not gone ahead, Aitken said the company had changed the structure several times, based on feedback from institutional and habitual investors. "We went through quite a lengthy process."

He said the 23 cent price was a result of the size of the deal and market conditions.

"This is a very large raising in New Zealand. That was the price that was required to get the level of support needed."

Forsyth Barr analyst John Cairns said the rights issue was the only avenue left open for the company to pursue.

"The fact that it is fully underwritten is a positive outcome, regardless of the acceptances, the money is assured to meet the banking covenants."

But Cairns said the dilution effect for existing shareholders was significant.

However he hoped the capital raising would allow Nuplex to stabilise its books and tough it out through the difficult economic times.

"At the end of day Nuplex is still a good business, it is just in very challenging times."

Nuplex hit problems because of a drop in demand for its products, which include resins to go into paint, glue and printing and are used in industries, such as construction and new car manufacturing.

But it still faces a number of challenges yet, including an investigation by the NZX into a possible breach of regulation.

The company said the investigation was in relation to its continuous disclosure obligations over the breach in its senior debt cover ratio as of December 31.

Nuplex revealed it was in talks with its bankers over the breach only after an NZX enquiry in February over why its share price had fallen so fast. The Securities Commission has also requested information.

The rights trading is set to run on the NZX from April 2 to run until April 15 and on the ASX from March 26 until April 9.

The offer will close on April 20 and the new shares will be issued on April 23.

Nuplex said it also intended to ask the exchanges for approval for First NZ Capital to enter into a call option arrangement which would allow it to offer up to 15 per cent of the shares on issue to habitual and institutional investors who have sub-underwritten the deal, up to five days after April 23.

The "top-up" will allow it to raise a further $22.8 million.