Z Energy is looking to re-set is balance sheet to weather the Covid-19 crisis. Photo / Dean Purcell
Z Energy is looking to re-set is balance sheet to weather the Covid-19 crisis. Photo / Dean Purcell
Z Energy is raising $350 million to stabilise its business but also to get a break on debt covenant requirements over the next 12 months.
Just 17 per cent of new shares will be available to smaller shareholders as part of a share purchase plan, which has raised eyebrows withone market analyst as being a ''bit low''.
A consortium of banks - including the big four here: ANZ, ASB, Westpac and the BNZ - and US private placement holders demanded a minimum equity raise of at least $200m with $180m to pay down bank debt immediately.
Z's shares are on a trading halt today as the fully underwritten placement is done with institutions and other select investors in this country, Australia and others participating in the bookbuild. It will raise $290m and has a floor price of $2.75 per share, representing a discount of 12.4 per cent on last Friday's closing price of $3.14.
A share purchase plan (SPP) would raise another $60 million from existing holders. It is not underwritten.
The price of shares offered under the SPP will be the lower of the placement share price or a 2.5 per cent discount to the 5-day volume average weighted price of Z shares traded on the NZX during the last 5 days of the SPP offer period.
The capital raise will allow covenant relief for the next two test dates on September 30 and next March 31 (a formal breach only occurs after two consecutive reporting periods). As part of the conditions for relief, covenants will be tested quarter from September next year - to date they had been tested semi-annually.
The company said that the size of the SPP would cater for the ''majority'' of its non-institutional shareholders, enabling them to maintain their relative shareholdings in Z if they wanted.
The final terms of the SPP are expected to be announced in more detail on May 15.
The capital raise follows those by companies including Kathmandu, property company manager Augusta and Auckland Airport which early in April raised $1.2 billion through an offer to institutions and investors at an 11 per cent discount to the last trading price. In that case the shares snapped up by institutions had a floor price of $4.50 and were today trading at $5.80.
Z says its equity raising has been sized with the intention of delivering a robust capital structure that allowed it to navigate the current market conditions while favourably positioning the business to take advantage of opportunities as the New Zealand economy begins to recover.
The equity raising represents about 27.9 per cent of Z's market capitalisation at last Friday's close.
No guidance for the impact of Covid-19 on the current year's outlook was expected and none was given but chief executive Mike Bennetts said modelling to assess the impact of lockdown levels had been accurate to date.
Z has about 45 per cent of the fuel market and the level 4 lockdown cut petrol and diesel volumes by about 80 per cent, while in level 3 they are currently down about 55 per cent. The firm expects a 20 per cent reduction under the level 2 restrictions and a 15 per cent reduction under level 1. Because flying is down to skeleton services jet fuel volumes fell to 85 per cent under level 4 and at best under level 3 will be at 75 per cent.
Its statutory net profit - which takes into account the value of fuel it holds - plunged from $186m to $88m in the year to March 31.
This included a $61m write-down against the value of Caltex fuel supply contracts and a $35m write-down on the company's stake in power retailer Flick Electric.
Its net profit, calculated on a replacement cost basis, fell to $44m in the past year from $178m a year earlier.
It has a 15 per cent stake in Refining NZ and the collapse of regional refining margins meant Z contributed $15m in fee floor payments. Bennetts said the oil was being imported at a much higher price in December and January than the refined product was being sold for in February and March as global prices collapsed.
Z Energy is looking to re-set is balance sheet to weather the Covid-19 crisis. Photo / Dean Purcell
Aggressive cost cutting was seen by an analyst as setting the company up well for a recovery into this decade, given its strong market position.
Z has identified operating cost reductions of between $74m and $96m for this financial year with the range dependent on the severity of Covid-19 volume decreases and its response.
The $74m is made up of $48m from structural, recurring cost reductions and $26m arising from one-off savings. Included in the $26m one-off costs are $18m from decreased volume related costs. Marketing costs were being cut and the hibernation of its Wiri bio-diesel plant would also contribute.
"We're taking a prudent view of demand forecast for FY21 due to the unpredictable consequences of Covid-19 related impact on demand. In response to this uncertainty Z will significantly reduce operating expenses, retain cash and raise equity capital to support a robust capital structure for the business,'' Bennetts said.
