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Incitec in big raising to cut debt

With net debt of almost A$1.9 billion, and global economic uncertainties high, explosives and fertiliser concern Incitec Pivot has decided to take pre-emptive action to strengthen its balance sheet and raise up to $675 million.
Incitec in big raising to cut debt Incitec in big raising to cut debt Incitec in big raising to cut debt Incitec in big raising to cut debt Incitec in big raising to cut debt

The explosives business is steady, according to Incitec Pivot

Haydn Black

The raising comes with an underwritten institutional placement with JP Morgan, Merrill Lynch and Macquarie for $600 million, with the new shares amounting to 18.6% of issued shares.
A further $75 million would be sought in the form of a non-underwritten share purchase plan. 
If demand is high, Incitec may expand the SPP.
The placement is priced at $2 per share, around a 10% discount to recent trading, while the SPP will either match the placement price or a 2% discount to the five-day average on June 9, whichever is lower.
The cash will be used to repay syndicated facilities before the next maturity of US$220 million in August 2021, with any excess to bolster its treasury. 
If all goes to plan, the chemicals giant will increase its pro-forma total liquidity to $1.73 billion, reducing net debt to A$1.3 billion and lowering its debt to earnings leverage from 2.8 to 1.9.
Incitec also announced it would not pay an interim dividend for the first half of financial 2020 as it delivered its half-yearly result today.
CEO Jeanne Johns said while COVID-19 was yet to have a significant impact on operations, global economic uncertainty was likely to impact customer demand and heighten the risk to a recovery in commodity prices. 
"The equity raising will strengthen our balance sheet and liquidity position, highlighting our commitment to maintaining a strong investment grade credit rating profile as well as increasing resilience in the current environment," she said. 
The company's half-year results for the six months to March 31 saw statutory net profit after tax rise 22% year-on-year to $65 million, while earnings before tax were up 34% to $159 million, with operating cashflow of $152 million, up from a cash outflow of $35 million for first half of financial 2019.
A COVID-19 response plan aims to deliver $60 million in savings through "cost discipline initiatives, and reductions and deferrals in capital expenditure", Johns said.
She said while there was pressure on the fertilisers business due to record low commodity prices and drought conditions in the half, however its delivery of explosives to the US and Australian mining sectors remained resilient. 
Incitec shares were last traded at $2.19, within a 12-month range of $1.56-3.70, with the company valued at $3.5 billion.

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