1bn pounds rights to accompany ICI split

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The Independent Online
THE City is braced for a pounds 1bn cash call from Imperial Chemical Industries on Thursday when it announces whether it will go ahead with a demerger of its bioscience business.

The decision will be taken by a sub-committee of ICI directors - including Sir Denys Henderson, chairman, and David Barnes and Ronnie Hampel, chief executives- elect of the two new businesses - on Thursday morning, following a discussion by the full board on Wednesday night.

The City believes it will go ahead with the split although some think it will wait for up to six months before it is formally implemented. But most analysts think it will take advantage of its strong share price - which has risen from pounds 10.60 to pounds 11.18 since the beginning of the year - to raise funds to facilitate the split.

ICI said last July that it was considering demerging its pharmaceuticals, agrochemicals and specialty chemicals business into a new company, to be called Zeneca, leaving its bulk chemicals, explosives and paints business in the old company. It said then that it would consider a public offering to raise funds for Zeneca, subject to market conditions, at the same time.

Since then, however, conditions in the chemical industry have deteriorated, and ICI is expected to announce a drop in profits before tax from pounds 843m to pounds 550m, the lowest since 1982. That means the dividend - which is expected to be held at 55p - will not be covered by earnings of just over 48p.

Old ICI is likely to have lost about pounds 19m in the final quarter and is expected to remain loss- making for the first half of this year, which means profits this year could fall further below the pounds 117m expected for 1992.

Zeneca's profits have been hit by the expiry of the US patent on Tenormin, its heart drug, and for the last three months are expected to be pounds 121m, down from pounds 144m in the previous quarter. Revenues from new products are unlikely to come through strongly until next year at the earliest. That means ICI may defer the demerger.

But analysts say it might decide to raise finance now to tap the markets ahead of the Government's gilt-funding programme. While a conventional rights issue would be attractive as its shares stand at more than 23 times earnings, it may woo overseas investors through an international placing.