Woodchipper Gunns Ltd says it is confident of getting sufficient commitment to enable a vital capital raising to proceed, just days after a billionaire investor pulled out of a major recapitalisation.
Shares in Gunns were suspended from trading on the Australian Securities Exchange (ASX) on Tuesday at the request of the company while it negotiates the capital raising.
A Gunns spokesman said the size and details of the capital raising would be revealed next week.
Gunns expects the suspension to last for four trading days, with quotation of its securities to restart on Monday, March 19.
“The capital raising will be material to the company’s financial position and strategy,” Gunns said in statement on Tuesday.
Gunns, which also has been negotiating the key terms of the financing structure for its controversial $2.5 billion pulp mill project at Bell Bay in Tasmania, has said that a capital raising and the company’s current asset sales program, would facilitate a further significant reduction in the company’s debt.
Gunns shares were placed in a two-day trading halt last Friday after the Singapore-based Richard Chandler Corporation (RCC) decided against investing $150 million in the company.
New Zealand-born billionaire Richard Chandler’s RCC had undertaken a process of due diligence to assess the possibility of investing 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.
Gunns on Tuesday said it expected to provide more information on RCC’s decision during the course of the suspension.
The company said the proposed new capital raising was likely to be in the form of pro-rata entitlements issue, to be made via a prospectus.
“Based on discussions to date, the company is confident of obtaining necessary commitments for the offer to proceed,” Gunns said.
Gunns said it had been negotiating a capital raising with the company’s major shareholders, a potential new institutional investor and investor banks since Gunns requested a trading halt to the company’s shares on March 9.
The talks had not been finalised and would not be completed prior to expiry of the trading halt called on Friday.
Morningstar analyst Peter Warnes said Gunns had a difficult task ahead.
He said that with RCC out of the picture, Gunns shareholders may be asked to stump up $280 million instead of the previously proposed $130 million.
“I don’t know if the pockets are deep enough,” Mr Warnes said.
“I don’t think the (Gunns) would get that underwritten. They may get it underwritten, but there would be a big shortfall.
“Who’s going to take up the shortfall? Big question.”
Mr Warnes said the proposal involving RCC would have given RCC a major stake in Gunns at a knock-down price, which would have been highly dilutive to existing shareholders.
At least an underwritten capital raising would allow existing shareholders to choose whether they wanted to put their hands in their pockets for a little or a lot, which would be more palatable.
Mr Warnes likened Gunns task of successfully raising $280 million via an entitlement issue to an Olympic diver.
“The degree of difficulty is bloody high. If they pull it off, they get the reward … or you can end up wiped out at the bottom,” he said.
Shares in Gunns last traded at 16 cents.
