Shares in Ashtead Group, the UK's second largest plant hire firm, rose sharply yesterday when the company concluded a much needed £410m debt facility to address an accounting scandal at its US subsidiary.
Ashtead's share price, which closed up 2p at 18.25p yesterday, had plunged to just 2.5p in March this year after an investigation by accountants KPMG showed that profits at Sunbelt Rentals had been inflated by £11.5m over the past three years.
Ian Robson, finance director said: "The group has clearly got the support of its banks and I think to emerge from the faults of the past in this way is a major step forward."
Two-thirds of Ashtead's business comes from the US, where Sunbelt holds a 2-3 per cent share of the $20bn market for rental construction equipment.
"The size and scale of the US is part of the issue ... There was a lag between the service being supplied and the invoice being processed. The finance controller was making estimates for these delays but with the benefit of hindsight we can see that the estimates were significantly in error," Mr. Robson said.
The finance controller at Sunbelt has since been replaced but there has been no suggestion of a fraud. Since February this year all orders to Sunbelt are posted and captured electronically.
The debt facility, due to be refinanced in January 2005, has been agreed with a syndicate of over 30 banks led by Bank of America and Lloyds TSB.
The news will also come as a relief to Rentokil Initial which saw bi-annual interest repayments on its £134m loan to Ashtead suspended following the accounting crisis.
Ashtead agreed to defer interest payments on the loan until it refinanced its banking arrangements.
Charlie Cottam, an analyst at WestLB Panmure said: "It makes sense for an engineering rental company to be very highly geared because they're capital intensive, but you need watertight financial controls."
"Once they've demonstrated the business is back on track there should be no problems refinancing the debt," he added.
Ashtead said it was confident of returning a profit when it publishes its annual report at the beginning of July, but said it would not be paying a dividend until refinancing the debt had been completed.Reuse content