BLUESCOPE Steel may struggle to hold much above the 40¢-a-share price of its surprise $600 million capital raising launched yesterday, with analysts expressing surprise at the blowout in the company's debt.
A high level of borrowings, weak domestic demand and continued high raw materials prices have been blamed by directors for going to shareholders with a 4-for-5 rights issue at 40¢ a share.
The issue has been priced at a steep discount to Monday's close of just 61¢. When trading resumes tomorrow, a sharp fall is anticipated.
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''It will react negatively when it resumes trading,'' Daiwa Securities analyst David Brennan said, pointing to the 11 per cent slump in OneSteel's share price to 83¢ yesterday.
Mr Brennan has a theoretical ex-rights price of 52¢ for BlueScope shares. ''I see it headed there, and potentially below that.''
The BlueScope issue is underwritten and renounceable, so that shareholders who do not wish to take up their entitlement may be able to profit if they opt to sell a part of their entitlement.
Institutional investors are expected to stump up about $330 million of the total issue size and retail investors $270 million, if they take up their full entitlement.
BlueScope warned shareholders at its annual meeting last Thursday of continuing difficult trading conditions, although they were told that cash freed up from the closure of one of its two blast furnaces, and the associated reduction in processing in Port Kembla and Western Port, would strengthen its balance sheet.
But yesterday the company disclosed that net debt at the end of last month had risen to $1.55 billion from $1.1 billion midyear, leaving it with little choice but to raise additional equity.
''Earnings continue to be impacted by the ongoing environment of a high Australian dollar, low steel prices, high raw material costs and softer demand conditions in Australia,'' BlueScope managing director Paul O'Malley said yesterday.
The company confirmed no interim dividend would be paid, although it was silent on a final dividend.
Analysts expressed surprise at the surge in borrowings and the lack of adequate explanation for the increase in recent months.
''How do you value a company that isn't making any money?'' one analyst said.
''We've all got it wrong with steel companies - underestimating the rise in raw material costs [and] overestimating demand and product pricing.''
BSL Price at posting:
51.7¢ Sentiment: Hold Disclosure: Held
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