Bad news looms for Dick Smith

Dick Smith is expected to make an announcement about its debt financing. Photo / Dean Purcell
Dick Smith is expected to make an announcement about its debt financing. Photo / Dean Purcell

Investors in Dick Smith are bracing for more bad news from the troubled electronics retailer as it prepares to update the stock market on its debt financing.

Shares in the retailer were placed in a trading halt in Australia today, reviving investor fears about the future of the troubled company.

Dick Smith expects to make an announcement about its funding position and debt financing covenants by January 6.

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Shares in the retailer have been battered in recent months, wiping out hundreds of millions in market value, after it issued two profit warnings following disappointing sales in October and November.

It launched a firesale in December to clear unwanted stock that cost it about A$60 million (NZ$64 million) in writedowns.

Dick Smith shares have tumbled 84 per cent since last May, forcing its axing from the ASX 200 index.

The stock closed at 35.5 cents last Thursday, ahead of the trading halt.

"It is highly likely that some portion of its syndicated loans has been called up or is being renegotiated," IG's market analyst Evan Lucas said.

"The question is how much and whether it will result in an equity raising or stake dilution."

The company holds net debt of around $40 million, analysts said.

The retailer first warned in October that full year profit could fall as much as 15 per cent to between A$37 million and $43 million, as it stepped up discounting and advertising to restore sales growth.

However, the company dumped its profit forecast a few weeks later, saying the sales slump had continued into November.

At the time, Dick Smith denied it was in danger of breaching debt covenants and had said it would update the market if there were any issues related to debt.

Dick Smith's current market value of $84 million is lower than the $94 million for which retail giant Woolworths received after selling the company to private equity firm Anchorage Capital Partners in 2012.

A year later, Anchorage floated the company on the Australian share market at $2.20 a share, valuing it at $520 million.

"It is possible that private equity firms may again be interested in buying the company. The question is - will they be able to turn it around this time and put it back on the market," Lucas said.

Poor sales by Dick Smith during the crucial Christmas holiday period could lead to more firesales by the retailer, which would drag down prospects even for rivals such as Harvey Norman and JB Hi-Fi, he said.

- AAP

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