Hartstone to raise pounds 30m to repay its creditors
Saturday 16 July 1994
It said it needed the money before the end of this month to repay lenders who had threatened to withdraw banking facilities.
The company also revealed it had lost pounds 71m in the year to 31 March and was contesting a legal action brought by its former chairman, Stephen Barker. Mr Barker was responsible for Hartstone's rapid expansion, driven by acquisition, through the 1980s.
He resigned last May and was to receive pounds 400,000 in compensation for loss of office. Hartstone has only paid pounds 60,000.
The size of Hartstone's cash call is greater than expected. Analysts had forecast pounds 25m.
About pounds 15m of the proceeds will be used to repay debts. Following the issue total borrowings will be reduced to pounds 32m, equivalent to gearing of 63 per cent.
The company made an operating profit, which was wiped out by interest charges. Costs of arranging the refinancing and reorganising continuing businesses pushed the firm into loss.
The overall loss, including pounds 50m of asset write-offs, was pounds 71m.
Shaun Dowling, the chairman who has led the reconstruction of the company with new senior management, criticised the system under which he has had to reconstruct the company's finances.
'The cost to the group of the whole refinancing process was pounds 13.6m, the equivalent of over pounds 1m a month, payable to both the lenders and to a plethora of advisers in the UK and the USA,' he said.
'The expenses only weaken the asset base and both the disruption and adverse publicity can paralyse the operations of a company for an indefinite period.'
He continued: 'Much simpler and infinitely less costly would be to allow the operating units to continue to trade and to insist on an immediate accountants' report which would recommend whatever changes in management or strategy were necessary.'
Mr Dowling said there were 23 banks in the consortium, each of which charged at pounds 360 an hour.
Added expense came because bankers could not agree between themselves. Mr Dowling said that lenders split into three camps, but the picture was complicated still further by tensions between British and American creditors.
Mr Dowling admitted that the core problem lay with Hartstone. It had borrowed too much money from too wide a spread of lenders.
The two-for-one cash call is pitched at 15p. Mr Dowling said the discount - 53 per cent to yesterday's opening price - was necessary to ensure the issue was underwritten. The shares closed down 10p at 22p. In November 1991 the price touched 300p. Hartstone promised to pay a 0.32p dividend at the end of this year.
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