Financially beleaguered BlueScope Steel has embarked on a deeply discounted $600 million capital raising to tackle debt and try and turn around its fortunes.
Australia’s largest steelmaker will use the issue of 1.5 billion new shares (825 million institutional and 675 million retail) to reduce almost $1.6 billion in net debt and strengthen its financial position.
“The entitlement offer will result in a more appropriate capital structure for the company,” BlueScope chief executive Peter O’Malley said in a statement on Tuesday.
However, analysts warn the company is vulnerable because of its plummeting share price, leaving it exposed to an opportunistic and hostile foreign takeover.
It has forecast a first half loss of up to $80 million as weak domestic demand for steel cripples earnings.
The company’s share price has plummeted by nearly 75 per cent since February to 61 cents on Tuesday when it entered into a trading halt ahead of the capital raising announcement.
BlueScope said the capital raising was a fully underwritten accelerated renounceable entitlement offer at 40 cents per share.
Eligible BlueScope shareholders will be able to buy four new shares for every five shares already held.
One analyst said management had to make a call about whether they would “pray” for demand and earnings to improve or whether they would do something to take away that risk.
“The last thing you want to do is be in a position where the banks requires you to sell high-quality assets at bargain-basement prices,” the analyst said.
By raising funds the company may be able to keep its asset base and have the option of selling them at better prices later or taking the earnings that will come from them.
Other analysts suggested the move was pre-emptive as credit tightened and the market threatened to deteriorate further.
There is also a belief among analysts that current global steel capacity utilisation of 76 per cent will improve.
BlueScope is trying to turn itself around after posting a $1 billion loss, closing a blast furnace and sacking more than 1000 workers in the past financial year.
Mr O’Malley said the company’s earnings were continuing to be hit by the high Australian dollar, low steel prices, high raw material costs and softer demand.
BlueScope said its net debt increased to $1.555 billion by October 31, up from $1.068 billion at June 30 because of restructure, working capital and capital expenditure costs.
Shareholders registered a large protest vote against BlueScope’s executive pay at its annual general meeting last week, after $3 million in bonuses were awarded.
