Freightways raising $50 million in new shares

Dean Bracewell. Photo / Martin Sykes

Listed courier company Freightways has announced a $50 million capital-raising as it seeks to reduce bank debt and strengthen its balance sheet.

Its shares are in a trading halt since the announcement of the $45m institutional share placement, which will be accompanied by a $5m offer of ordinary shares to existing shareholders.

The company said today the placement would be fully underwritten, at a price of $2.44 per share. Freightways shares closed at $2.78 yesterday.

A "Share Purchase Plan" (SPP) will have shares allocated to raise a maximum of $5m from existing shareholders. Applications will be scaled pro-rata if they total more than this amount.

The share trading halt was put in place before the market opened today, at Freightways' request, as it carries out the book build for the share placement.

NZX said the halt would remain in place until the outcome of the book build and placement was announced to the market.

The price of the shares issued under the SPP will be the lesser of the price set in during the placement and a volume weighted average price over the five business days prior to the launch of the offer.

"These capital raisings are part of Freightways' capital management programme to reduce bank debt and strengthen its balance sheet," said the company in its announcement to the stock exchange.

"This re-geared balance sheet will result in Freightways being positioned with greater financial flexibility to operate through the current economic downturn and also creates funding headroom to be able to explore future growth opportunities should they arise."

All the new shares issued through the placement and the SPP will rank equally with all other Freightways shares.

Freightways said fluctuating activity and volumes like those experienced throughout 2008 had continued into the March quarter.

Accurate forecasting remained difficult and the outlook uncertain in this country and Australia.

The full year result was expected to be within the analysts' range of expectations.

Reporting its six month results to the end of 2008 in February, Freightways said the economic downturn was hitting but profits had increased and it was "watching for acquisitions".

Net profit for the six months ended December 31 was up 1 per cent to $16.9 million on the back of a 10 per cent rise in revenue to $177.4 million. Revenue from existing customers was down but acquisitions, new business and price rises boosted the total.

The company would, said managing director Dean Bracewell in February, continue to look at acquisitions and alliances.

"We're not and we never have said that we're solely all about acquisitions but we will continue to look," he said.

"We believe opportunities will come around in this market .. that may not have been there in the past but we'll be pretty particular about which ones we look to exercise and what price we look to pay."

Business commentator Brian Gaynor, in a recent column on corporate debt, said Freightways had a high gearing ratio, with 72.1 per cent.

It came top of a list of 18 companies ranked on the basis of the net debt to net debt+equity ratio, which is a company's borrowings minus cash, relative to the book value of its total equity.

Corporates with a low percentage ratio have relatively little borrowings whereas those at the bottom of the list are relatively highly geared.

"This is a legacy of its IPO, which was a sell down by the hedge fund ABN AMRO Capital (Belgium). The former owners left the company with a gearing ratio of 67.6 per cent, an excellent management team and strong cash flow," said Gaynor.

"Freightways' high gearing is not a concern but it could restrict its growth potential because the company has received a strong contribution from debt financed acquisitions in recent years. It will be difficult to maintain this debt financed growth strategy because corporate borrowings will be more difficult to obtain in the months and years ahead."

ADDITIONAL REPORTING NZPA