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8/8/2018 — General
Big recapitalising for Steel & Tube
By Simon Hartley

Under-fire steel supplier Steel & Tube Ltd (NZX: STU) is seeking recapitalisation of $80.9 million to repay debt and complete its restructuring programme.

Steel & Tube chairwoman Susan Paterson said $20.8 M would be sought from institutions, at $1.15 per share, followed by the balance sought from a fully underwritten rights offer to shareholders, of pro rata 1 for 1.9 at $1.05, and a book build for any shortfall.

Shares in Steel & Tube, placed on a trading halt yesterday, were $1.46, 37.3% down on a year ago.

Ms Paterson said” “We have worked hard to address legacy issues and early benefits from `Project Strive' business transformation initiatives are now being seen.” she said.

Earlier this month Steel & Tube clinched a crucial waiver from its banks for breaching a covenant, and renegotiated its lending terms.

In late May, Steel & Tube's shares plunged to a 17-year low after the company announced a downgrade of more than $50 M and that it had breached some of its banking covenants.

Steel & Tube had expected its earnings before interest and tax (ebit) for its current full year to be similar to last year's $31 M, but that was downgraded in May to a $38 M ebit loss. Yesterday, that expected loss was hauled back slightly, with new guidance of a $36.2 M ebit loss.

Ms Paterson said: “The capital raised will be used to repay debt, strengthening our balance sheet and giving us greater flexibility to execute our strategy and deliver better value for our shareholders.

“We expect the capital raising to strengthen Steel & Tube's share register and help create liquidity which will benefit all shareholders.”

She said given the capital raising, a final full year 2018 dividend would not be paid. Dividends were expected to be resumed in full year 2019, which was consistent with Steel & Tube's policy of paying 60%-80% of normalised after-tax profit.

Ms Paterson said 2019 ebit guidance was of at least $25 M, with normalised ebit of $35 M to $40 M expected to be achieved during the next three years.

Reviews by new board and management since December identified several issues. The company is exiting its Steel & Tube Plastics; piping for on-farm irrigation, and is expecting a net write-down of up to $12 M.

A review of inventory on hand, including stock takes and assessment of aged inventory, meant a further write down of about $18 M was required, while a review of the carrying value of intangible assets meant an impairment of up to $10 M was likely.

Steel & Tube is scheduled to announce its 2018 result on August 31.

*Simon Hartley is senior business reporter and assistant chief reporter for the Otago Daily Times.

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