Banks tighten Nufarm noose
Ben Butler
October 1, 2010
BANKS that have thrown Nufarm a lifeline want to see changes to the board before they will extend more credit to the struggling agricultural chemicals company.
While the banks have stopped short of calling for the head of embattled chief executive Doug Rathbone, it is believed they want a succession plan in place before a December 15 deadline.
It is believed that the bankers who have thrown the company a lifeline want to see ''refreshing and rejigging'' of the board and senior management.
Nufarm scrip fell for the third day running yesterday, dropping 10?, or 2.7 per cent, to $3.61 after analysts slashed earnings forecasts and warned the company was not yet clear of its debt woes.
''We remain concerned about ongoing pricing and margin pressure, the need for debt covenant waivers, the upcoming strategic review and corporate governance concerns,'' Deutsche Bank analyst Mark Wilson said in a note to clients.
''We believe the banks will apply significant pressure through to the finalisation of the funding package in mid-December, with net interest expense already expected to be $10 million higher.''
UBS analysts Simon Mitchell and Ramoun Lazar said there was a ''risk of dilution from an equity issuance even if Nufarm is able to establish a new funding facility from mid-December''.
And ''ongoing uncertainty around capital and management succession is likely to see the stock struggle for some time'', they said in a note to clients.
The talks among the banks over the fate of Nufarm have been fraught, with Commonwealth Bank believed to have opposed the standstill agreement.
While CBA stood ready to provide credit to Nufarm under the old financing arrangements, that facility had not been drawn on and the bank has washed its hands of the company.
Complicating negotiations, Nufarm had signed a series of bilateral deals rather than one deal with a syndicate of banks.
All four big Australian banks are known to have been involved in the arrangement, set up in 1996.
Debt, which stands at $701 million, was unsecured. Instead, Nufarm signed a deed of negative pledge, promising not to mortgage its assets to anyone else. It was ''the worst bit of banking I've ever seen'', one senior banker said.
Bank exposures vary wildly, one source said, and even the number of banks involved is uncertain.
On Tuesday Mr Rathbone said there were 16 banks, but banking sources put the number involved at closer to 20.
Under a new deal signed on Monday, about 10 Australian banks and a handful of overseas lenders have formed a syndicate that has taken security over Nufarm's assets.
While the syndicate is believed to be broadly supportive of the company and has waived an interest cover covenant, Nufarm must meet performance hurdles before it will extend further credit.
The banks have advanced $55 million to keep the company afloat and a further $121 million is available if cash-flow and profitability targets are met.
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