Forge Group looks set to surrender a significant share of its equity to creditor ANZ Banking Group in exchange for a company-saving debt package, as spooked investors wiped more than 83 per cent from the contractor's market value.
Forge Group looks set to surrender a significant share of its equity to creditor ANZ Banking Group in exchange for a company-saving debt package, as spooked investors wiped more than 83 per cent from the contractor's market value.
Forge was smashed by investors today after it announced a $127 million one-off profit writedown in the 2014 financial year, closing its first day of trade in almost a month with its shares down $3.50 at 68 cents after earlier falling as low as 28.5 cents.
Forge's market capitalisation has fallen by more than $300 million to about $59 million on the back of the share price plunge.
The company now expects to report an earnings before interest, depreciation and amortisation loss of between $85 million and $90 million in FY14, driven by a raft of issues at two of its power station projects.
ANZ will increase its working capital facility with Forge from $11 million to $60 million, with $30 million available immediately and the balance available progressively as performance guarantees are returned or cancelled.
It has also agreed to exclude the impact of various covenants in relation to the company's existing banking facilities and to defer around $10 million in quarterly principal repayments on an existing acquisition facility.
In exchange, Forge will issue ANZ detachable warrants equivalent to 13 per cent of the company’s common equity.
Each warrant will entitle ANZ the right to subscribe for one fully paid ordinary share at an exercise price of 1 cent each.
ANZ can alternatively claim a cash payment equivalent to the difference between the aggregate exercise price paid for the warrants and the company’s 20-day volume-weighted average price.
Forge told the market upon entering a trading halt at the beginning of this month that, following an internal monthly review, it had identified performance issues at its engineering procurement and construction contracts at Rio Tinto's West Angelas power station project in the Pilbara and the Diamantina power station in Queensland.
The company admitted today that it had been facing a "challenging liquidity position" in the near-term as it worked to find the cash required to complete the projects.
Forge estimates a net cash outlay of around $45 million will be required to complete both projects, with the majority of these costs to be incurred in the coming weeks.
Forge had a cash balance of around $44 million and net debt of around $25 million at the end of October.
"I regret having to inform shareholders of this extremely disappointing outcome," Forge managing director Davd Simpson said.
"Several commercial, scope estimate and planning deficiencies have recently been identified on the DPS and WAPS projects which contributed to the substantial erosion in profit.
"The overall funding support (from ANZ) gives Forge Group the financial flexibility to continue to trade on a business as usual basis and deliver on our current work in hand.
"Additionally, it underpins our future growth and tendering prospects."
The company attributed the profit writedown on the power station projects to a range of factors including inadequate allowance for scope growth, large cost overruns in structural, mechanical, piping and electrical works, poor project management and delays in settling a number of claims.
New project directors have been appointed and Mr Simpson will have direct oversight of both projects.
Forge has identified $15 million in recurring cost saving initiatives and will pursue further efficiencies.
The company noted that its contracted order book exceeds $1.8 billion, with $900 million expected to delivered in FY14.
It also has more than $1 billion in active tenders underway.
See Mark Pownall's column today for further analysis.