Invensys weighs £500m cash call

Rights issue would ease looming debt repayment; Asset sales failing to bring expected returns
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The debt-laden engineering group Invensys is mulling a rights issue of as much as £500m to give it extra financial headroom ahead of a key debt repayment date this summer.

The company, which launched a massive disposal programme last year to help raise funds, is said to have asked its banker Morgan Stanley to look into the possibility of launching an issue.

The proceeds from such an exercise would help Invensys shore up its balance sheet and would give it more time to sell assets that have already been earmarked for disposal.

In June, the company must repay about £500m of its borrowings - the amount it has so far drawn down from the first tranche of its borrowings, which stand at around £1.6bn in total. The bulk of the debt falls due in 2005.

A rights issue would not be wholly unexpected since Invensys had warned in November that it could run out of cash by June if it failed to complete its sweeping programme of disposals.

One City source said: "Knowing the situation, it doesn't surprise me much. The first deadline for [debt] repayment is coming up in June and they will want to be certain that there can be no doubts that they can meet it."

In a circular to shareholders in November concerning the disposal of its metering business, Invensys said: "If the disposal programme announced on 15 April does not generate sufficient proceeds to pay down the revolving credit facility, the group would require additional sources of working capital."

Last April, the company announced a disposal programme aimed at raising some £1.8bn to help cut its borrowings and straighten out a £700m hole in its pension fund.

But the sale programme has not delivered the sorts of returns that investors had hoped for. Its first major disposal - of the North Carolina-based metering service -- brought in about £389m but that was far beneath what analysts were expecting.

That brings the total the company has raised from selling assets to about £500m. So far it has sold three businesses but has another six assets, including its appliance controls and windpower businesses, to sell.

"They've only sold one big one so far and they have four major ones to do.... If they got one of those big ones away in the next couple of months, they'd be fine," the source said. "In the meantime, a fundraising would help matters."

Invensys sold Baan, the loss-making Dutch software group that lay at the heart of its problems, for about £83m last summer. That was followed by the sale of the loss-making US electronics company Teccor for $44m, and the metering business.

A spokesman for the company refused to comment on the speculation yesterday.

Invensys has already had to dampen hopes for its disposals programme. While it said in November that it expected to raise £1.8bn from selling off businesses, it said it no longer thought it could beat the target by a substantial margin.

The chief executive, Rick Haythornthwaite, said then: "There are plenty of buyers out there and plenty of money but buyers are cagier than in the first batch of disposals. They are more wary of restructuring costs."

Mr Haythornthwaite was brought in just over two years ago with the task of cutting borrowings. Net debt of about £1.6bn is already down from £3bn before the disposal programme began 18 months ago.