View from City Road: Grim new year for MTM

SHAREHOLDERS in MTM, the imploding chemical group, face a dispiriting and probably unrewarding trek on New Year's Eve up to Rudby Hall, the company's Cleveland country house headquarters.

They have been gathered by MTM directors for an extraordinary meeting under section 142 of the Companies Act 1985, which is concerned with a serious loss of capital. Those present will ponder 'whether any, and if so what, steps should be taken to deal with the situation'.

The situation, as revealed by MTM yesterday, is dire indeed. The good news is that it has won a standstill agreement with its banks until 31 March next year.

The bad news for shell-shocked investors is that already depleted net worth of pounds 15m at 30 June will probably have vanished by 31 December while net debt, with a boost from the fall in sterling against the dollar, has risen from pounds 100m to about pounds 120m.

As a result MTM has breached its borrowing limits and triggered section 142 since net assets are less than half its called-up share capital.

The new MTM management team, installed by large shareholders and headed by Ken Schofield, the ex-Hickson chief, is blaming not just a weak world chemical market for its problems.

Apart from presumably negligible trading profits, about half of the suggested pounds 15m second-half net loss stems from towering interest payments on MTM's debt and fees to banks, lawyers, merchant banks and others, which may be running at up to pounds 500,000 a month.

MTM has realised only pounds 5m from disposals since September, with another pounds 15m under negotiation but by no means guaranteed. Some pounds 5m will be provided against the carrying value of the earmarked disposals.

The stock market's response was to cut MTM shares roughly in half, from 31p to 15p. Before the departure earlier this year of Richard Lines, founder and chairman, the shares traded as high as 289p.

MTM is now capitalised at just pounds 13m, which suggests that the shareholders' role in any future refinancing will be small in relation to that of the banks.

The banks are surely looking at a sizeable conversion of their pounds 120m debts into equity, which would at best severely dilute existing, long-suffering shareholders.