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Nuplex - Source: Nuplex -
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The managing director of troubled resin manufacturer Nuplex says he is confident the company can raise the $110 million needed to pay down its debts.
On Monday, Nuplex said its banks had agreed to various amendments to the company's senior debt ratio covenant following news in February that it had breached its debt covenant.
As part of its agreement Nuplex will raise capital via a placement of shares to institutional investors, and a rights issue of shares to existing shareholders.
Nuplex managing director John Hirst believes there will be demand and appetite for the shares given the company's performance.
"We were profitable right through the first half of last year, we remain profitable now, we have a very strong cash flow," he says.
The company's share price has taken a hammering recently, falling 16% in February after news it had breached its covenant.
However, Hirst believes the market misjudged the company's issues with the bank.
"It was a purely technical ratio, it was a consequence of the New Zealand dollar softening very rapidly during late November and through to December," he says.
Hirst says the company's sales recently have been mixed but the bottom of the market may have been reached.
"We've seen some pick up...in certain areas...In other areas we still believe there's some inventory in the supply chain, so there's an upside, but that could be some six to 12 months away," he says.
However, while Hirst is upbeat about the share placement, market commentator Brian Gaynor says shareholders stand to lose a "massive amount" as a result.
"[Nuplex] made a major acquisition in the northern hemishere back in January 2005. They issued shares to investors at that time of $4.90. The shares finished at $1.07 on Friday, and there's going to be a placement in capital raisings which will probably be substantially less than that price," he says.
Gaynor believes Nuplex has been caught out by not expanding its management team to meet the demands of the offshore acquisition.
"[This] is very sad, because basically it's a good company with a good model and should be doing a lot better than it is. Existing shareholders are going to get hugely diluted in this capital raising," says Gaynor.
He believes existing shareholders will be reduced to owning around 25-30% of the company and new shareholders will own around 70-75%.
Gaynor says while existing shareholders need to give their approval to the process, they have been left with no real options as the banks now control the company's position.
