Building materials company SIG yesterday became the latest supplier to the construction industry to make a cash call as the worsening economy hurt outlook for its products in both the UK and Ireland. The building insulation-maker, which operates throughout Europe, plans to raise £341m through two separate equity transactions: a placing and open offer.
It hopes to raise about £181m through the placing, while the open offer is expected to bring about £160m. Both offers are priced at 75 pence per share, that's a discount of about a quarter from yesterday's closing price of just over a pound. The Sheffield-based company also reported a fall in profit for last year and announced it will scrap its final dividend. SIOG added it is not in breach of any banking covenants on its net debt, which stood at £697 m at the end of 2008. That's more than four times its market value of just under £150m.
SIG is trying to boost their number of shares and raise cash as the value of its debt, already high, has recently been inflated by the depreciation of the pound against the euro.
"The raising of equity will provide the group with a more appropriate capital structure and provide financial flexibility in the current environment," said analysts at Killik & Co. "Although, in the longer term, the placing will enable the group to capitalise on the long-term growth drivers in its end markets, we remain cautious in the short term given the poor trading momentum."
Shares in SIG have fallen almost 90 per cent in the past year, as investors have been put off by the severe downturn in house-building in the UK and Ireland that has left some builders such a giant Taylor Wimpey struggling for survival.
SIG's cash call, which it had already flagged earlier this week, follows in the footsteps of rival building supplies company Wolseley, as well as companies across sectors as varied as insurance, real estate and mining, that have all come under pressure to raise cash this year. Wolseley, which is additionally exposed to the US where house-building has seen an extreme slump, raised £1 bn earlier this month in a bid to rebuild its balance sheet. SIG's cash-raising plan needs to be approved by shareholders at an EGM in April. The company also said it cut 7 per cent of its workforce in 2008, amounting to over 1000 jobs with further reductions likely this year. The company added that trading in mainland Europe has been strong, but warned that prospects for the UK and Ireland remain challenging.