capital raising

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Timber company Gunns Ltd is set to announce a capital raising in a bid to boost its balance sheet and keep hopes for its controversial Tamar Valley pulp mill alive.

According to The Australian Financial Review, Gunns will seek to raise $300 to $400 million with the rights issue and is also expected to announce that founder and chief executive John Gay will become company chairman in the coming year.

Last week, Gunns shares slumped more than seven per cent after the company cut its profit expectations following challenging conditions in the softwood market and higher interest costs.

Gunns said it expected a net profit for 2007/08 of about $67 million, based on preliminary unaudited figures.

A successful capital raising will allow Gunns to repay bridging finance with Australia and New Zealand Banking Group and improve its cash-flow position, the paper said.

The non-underwritten rights issue will be led by Credit Suisse, JP Morgan and Macquarie Capital Advisers, the paper said.

Gunns also said that as a part of a review of its broader capital structure, the company was considering the divestment of a tranche of plantation forest.

The offer under consideration will realise about $170 million. If the transaction is completed, the funds will be used to reduce debt.

Last month, The forestry group confirmed to Business Spectator that its controversial Tasmanian pulp mill could still go ahead with European banks moving to invest in the $2 billion project.

Under the terms of the new deal the company may still inject its own equity cash, which could prove difficult under tough market conditions, Gunns said

The company would also still need a major local bank to provide transactions and any association with the mill could result in a PR fallout.

However, the syndicate of European banks is said to be enthusiastic as demand for eucalypt pulp accelerates.

The company is due to release its 2008 financial year result on August 28

http://www.businessspectator.com.au/bs.nsf/Article/Gunns-plans-capital-raising-report-HPPGS?OpenDocument