April 16, 2018 / 11:44 PM / in 6 months

UPDATE 2-NZ's Fletcher Building announces refinancing and spin off plans

* Fletcher building announces NZ$1.25 bln refinancing plan

* Firm plans to spin off Formica and roof tile units

* Fletcher seeks to reset strategy after cost blow outs (Recasts with refinancing, sale and new strategy)

By Charlotte Greenfield

WELLINGTON, April 17 (Reuters) - New Zealand’s Fletcher Building announced a NZ$1.25 billion ($920 million) refinancing plan and the proposed sale of its Formica and steel roofing tiles business on Tuesday, while dismissing a report it had become a takeover target.

Chief executive Ross Taylor said the firm was streamlining businesses as it attempts to reset its strategy after bungling the country’s biggest construction boom in living memory with a series of cost blow outs in its commercial construction unit.

“We’re operating across many different businesses and geographies and have businesses that have many competing needs,” Taylor said in a media call. “It’s essential we cut through this and as such we’ll focus our activities on Australia and New Zealand going forward.”

Taylor also rejected an Australian media report on Friday that Australian conglomerate Wesfarmers Ltd had acquired a 3 percent to 4 percent stake in New Zealand’s biggest construction company with a view to a takeover.

“Wesfarmers has confirmed to Fletcher Building that it does not hold shares in Fletcher Building,” Taylor said on a media call.

“We’ve got a pretty exciting and large agenda as we paint the future here so it’s obviously easier not to have a takeover in the background going on...I think my life’s a bit easier without it.”

Wesfarmers confirmed they had told Fletcher they did not own shares, company spokeswoman Cathy Bolt told Reuters.

Shares in Fletcher, which had been battered by investors since it announced its heavy losses in its commercial construction unit, posted their biggest one-day gain in 18 years on the back of the report.

Fletcher requested and received a trading halt on Tuesday morning until Friday.

FIRMER FOOTING FOR LENDER NEGOTIATIONS

In March, Fletcher said lenders had extended waivers for breaches of its financial covenants until the end of May as the company sought to renegotiate its agreements.

The company said on Tuesday it plans to raise NZ$750 million through an entitlement offer as it addresses the huge cost overruns in its commercial building unit. It has also set up a new standby banking facility of NZ$500 million.

Fletcher’s reconfigured capital structure had provided a “permanent solution” to the firm’s breaches of its syndicated lenders agreement and it expected to wrap up its negotiations with it’s U.S. lenders by May 31, Taylor told media.

“From our perspective the capital raise does put Fletcher Building on a firmer footing to continue to rebuild its businesses,” Shane Solly, portfolio manager at Harbour Asset Management, which owns Fletcher shares, told Reuters.

“Certainly having a lower gearing target is quite prudent and the proposed sale of Formica and the tile business pulls the business back to its core focus.”

The firm reiterated its estimate for earnings before tax estimate of NZ$680 million to NZ$720 million for the full year.

Taylor told reporters that Fletcher would likely be in a position to resume dividend payments in the 2019 financial year after announcing in February that it would not pay out a dividend for the second half of the current financial year.

Taylor did not comment on the 5.1 percent stake recently acquired by Australian investment firm Ellerston Capital. Ellerston had no immediate comment on Tuesday, but had listed Fletcher as a “turnaround story” in an investor newsletter. ($1 = 1.3581 New Zealand dollars) (Reporting by Charlotte Greenfield and Tom Westbrook. Writing by Jane Wardell. Editing by G Crosse and Michael Perry)

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