Troubled Costain bailed out by South-east Asian investor

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The Independent Online
Costain, the troubled construction group, was thrown a financial lifeline yesterday when it unveiled plans for a pounds 73.6m share issue that will give a 40 per cent stake to a new Asian investor.

The deal, Costain's third capital raising exercise in five years, involves Malaysian infrastructure group Intria Berhad becoming Costain's biggest shareholder.

Costain billed the deal as a major opportunity for expansion in South- east Asia. "Our association with Intria will help provide significant new business opportunities in Malaysia and elsewhere," said Alan Lovell, Costain's chief executive. He added that the cash injection was crucial if it was to retain the support of its banks after lending covenants were broken last year.

Costain said the Takeover Panel had agreed to waive the rule obliging any firm or individual buying more than 30 per cent of the voting rights in a public company making a general offer to remaining shareholders.

However, there was no further news on the planned disposal of Costain's US mining division which is expected to raise about pounds 45m. Talks are at an advanced stage. "In a ideal world we would have announced the sale of our US businesses at the same time [as the re-financing]," Mr Lovell admitted.

Costain has been in limbo for the past week after its shares were suspended for failing to publish its 1995 results on time.

The shares remain frozen at 39p after slumping 31p before the suspension, but Costain expects them to be re-listed before the end of month once the open offer is completed and the annual report is published.

Intria has agreed to underwrite 40 per cent of a 3-for-1 open offer for Costain shares at 50p. It has also been assigned four places on the Costain board.

The banks will underwrite the rest of the share offer in a debt-for- equity swap giving them 35 per cent of the firm. Half the cash raised will be used to cut Costain's pounds 77m of debt, the remainder to finance new business.

Mr Lovell said following the refinancing, net debt will fall to pounds 3m on pro forma shareholders' funds of pounds 42.8m.

Costain, whose chairman Sir Christopher Benson is to step down by May 1997, plans to write off an pounds 89.8m deficit on its profit and loss account, clearing the way for dividend payments to be resumed.

The company, announcing its results for the year to December 1995, paid no dividend last year. Stripping out exceptional charges of pounds 93.4m, the 1995 pre-tax loss was pounds 37.8m, compared with pounds 27.9m in 1994.

Mark Hake, analyst at UBS, said the deal placed the balance of power in Costain with a set of major investors.

"The Malaysians will have the most power with 40 per cent [of shares], with the Arabs [two major shareholders] holding 38 per cent. Not much of the stock will be in the open market."

Kuwait-based construction group Mohamed Abdulmohsin Kharafi & Sons has some 19.1 per cent of the company, and a further 19.2 per cent is held by Saudi-based Raymond International.

But Mr Hake said the deal would give Costain the financial muscle to compete for projects, especially in Asia, "which has been a very good market for construction".

Mr Lovell said that just half the pounds 580m year-end order book was earmarked for overseas business. "The proportion of South-East Asia is bound to go up," he added.

Costain currently makes about 15 per cent of its sales in the region.

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