Class action looms as Forge shares hammered
PAUL GARVEY THE AUSTRALIAN NOVEMBER 29, 2013 12:00AM.
BESIEGED contractor Forge Group is battling to appease angry shareholders amid threats of class-action lawsuits and expectations it will be drawn into a dilutive equity raising.
In one of the bloodiest examples of the carnage inflicted on Australia's mining contractors by the slowdown in the nation's mining sector in recent times, shares in Perth-based Forge plummeted more than 82 per cent in a frenetic day of trade that wiped more than $300 million off the company's value. Institutional investors were among the hardest hit from the price fall.
The representation of institutional shareholders on the Forge register increased substantially when engineering group Clough offloaded its major holding in March at $6.05 through a block trade managed by Macquarie, but those shares were worth just 68.5c at the close of trade yesterday.
Forge emerged from a three-week trading halt to confirm that issues with two power station contracts would force it to wear a $127m writedown and require it to spend a further $45m in the coming weeks to rectify the problems. With Forge having only $44m to its name at the end of October, it was forced to negotiate costly lending concessions with its bankers at ANZ to avoid a cash squeeze that would have threatened the company's survival.
The group now expects to record a loss before interest, taxation, depreciation and amortisation for 2014 of $85m-$90m, compared with EBITDA in 2013 of $115.5m.
Forge managing director David Simpson told The Australian that several senior managers from the company's power division had left the company as a result of the problems, while up to 40 jobs would be axed as the group moved to pull $15m-$20m in costs out of the business.
Mr Simpson said he believed the expanded ANZ lending facilities would be a "full fix" for the company's current issues, and said the group could retain and win work despite the intense scrutiny of its balance sheet.
"We've got the support of the lenders, we've got the support of the customers and I have the support of the board," Mr Simpson said. "The true test of leadership as an individual and as a team is going to be how we come out of this in the next 18 months, and how we rebuild the wealth and the value for the shareholders. I think I'm the best person to do that."
The sudden reversal of fortunes at Forge has drawn suggestions of a class action from aggrieved shareholders.
But Forge chairman David Craig said he believed the company had met its continuous disclosure obligations.
"I understand that sort of talk (about class actions), but from my perspective the board and the management have done everything right," Mr Craig said.
"We've followed our disclosure obligations to a T. We've been well advised all along, so the board does not think there's an issue there."
Contractors including WorleyParsons, Ausdrill and Monadelphous have all been caught up in profit downgrades and warnings in recent weeks.
Another engineering group, Brisbane-based Ausenco, yesterday announced it would raise $31m through an entitlement offer at 70c a share as it looked to reinforce its balance sheet amid challenging market conditions.
The offer price represented a steep 41.7 per cent discount to its previous trading price. Ausenco said it now expected to record a loss for 2013 of $35.7m.
- See more at: http://www.theaustralian.com.au/business/mining-energy/class-action-looms-as-forge-shares-hammered/story-e6frg9df-1226770844110#sthash.kJ9o4pjn.dpuf
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