Woodchipper Gunns Ltd may seek to raise about $400 million to cut debt and support the development of its $2.5 billion pulp mill project, in what one analyst describes as its “last throw of the dice”.
The amount of the proposed new capital raising is much larger than the $280 million capital raising previously proposed by Gunns, which was derailed when New Zealand billionaire Richard Chandler pulled out.
Gunns said on Monday that said some key elements of the new proposed capital raising, that could involve a placement of shares to new investors, were still to be finalised.
Consequently, Gunns requested that its shares remain suspended from trading and said it would provide a further update on April 2.
Gunns, which is seeking to develop a controversial $2.5 billion pulp mill at Bell Bay in Tasmania, said it would seek to raise enough money to significantly cut its debt and strengthen its balance sheet.
“Investors have encouraged the company to raise sufficient equity capital to provide it with the desired flexibility in its approach to financing the Bell Bay pulp mill,” Gunns said in a statement.
“Additional financial flexibility is likely to result in a superior outcome in the pulp mill financing.
“In addition, the company believes that its ongoing non-core asset sale program will be enhanced by a material strengthening of its balance sheet.”
Gunns said that in preparation for the equity raising, the company and its advisors, Moelis & Company, were reviewing the process of the non-core asset sales, bank facilities and the financial metrics relating to the Bell Bay pulp mill.
“Concurrently, the company is preparing the necessary documentation relating to the equity raising and likely shareholder meeting to approve aspects of the proposed recapitalisation that is under consideration by the company,” Gunns said.
Shares in Gunns were suspended from trading on the Australian Securities Exchange (ASX) on March 13 at the request of the company.
Gunns shares had earlier been placed in a trading halt after the Singapore-based Richard Chandler Corporation (RCC) decided against investing $150 million in Gunns.
The investment was to have been part of a proposed $280 million capital raising for Gunns that would have given the RCC a cornerstone stake in the woodchipper.
It had been intended to raise the other $130 million via a rights issue.
Morningstar analyst Peter Warnes said that if Gunns were to raise $400 million in capital at the previously suggested 12 cents per share, the company would have to issue 3.3 billion new shares, bringing the total number of shares on issue to 4.2 billion.
Mr Warnes likened it to a very speculative mining company.
Mr Warnes said the advantage of raising $400 million would leave Gunns some extra money after paying off debt to invest in the pulp mill project.
It would also take off some of the pressure on the sale of non-core assets, allowing Gunns to achieve a better price.
“This is the last throw of the dice,” Mr Warnes told AAP.
“They (Gunns) get this away or they don’t.”
Gunns shares last traded at 16 cents.
