nilex and highway robbery!, page-21

re: calling seats/clicks mkt control From todays Melbourne Age:

Nylex discount offer to raise quick $45m
By Christopher Webb
April 20, 2005


Glen Casey says Nylex shares are a good buy.

Poor ol' Nylex shareholders: what have they done to deserve it?

One month ago these loyal souls, who have held on to their shares through thick and thin, were looking at scrip worth 42¢ or thereabouts.

Yesterday, they saw the shares sell mostly at 29¢, accompanied by the news that professional investors had loaded up with $40 million worth of stock at 27¢ apiece. How cosy.

More than 22 million shares were booked and it's anyone's guess how many fund managers were flogging stock for a quick 2¢ or 3¢ a share profit. Yesterday the scrip shed 4.5¢ to end at 28.5¢.

Any profit is nice in a market like this and small Nylex shareholders who have shouldered $586 million in accumulated losses didn't get a look in.

Oh, just a moment, they did. They can each apply for the grand sum of five grand worth of stock at 27¢. The 20,000 or so folk on the register will divvy up $5 million of shares.

The winners from the issues - which will raise a total of $45 million - are Bell Potter Securities, which will pocket a useful fee for the arduous task of doling out stock at a 26 per cent discount, and various lucky institutional investors.

The deal resembles a previous placement by Nylex that raised $100 million in 2003.

That effort, preceded by share trading that came under the stock exchange microscope, sent the shares from 43.5¢ to 36.5¢.

On that occasion the company placed, again through Bell Potter, 300 million shares at 25¢ apiece.

The subscribers saw the shares fetch 39.5¢ shortly thereafter.

Meanwhile, Nylex chief Glen Casey declared that the latest placement, including $6.2 million to interests associated with Kerry Stokes, had received "strong support" from institutional shareholders. Small wonder.

The latest effort was accompanied by an adjustment to earnings forecasts.

But anyone who imagined that a placement pitched at a 26 per cent discount to last week's price or at a 36 per cent discount to the price one month ago had come hot on the heels of an earnings downgrade had it all wrong.

Casey delivered an upgrade that forecast earnings before interest and tax would rise from the previously forecast $32-$34 million, to a revised $33-$35 million. On a tax-paid basis, the upward adjustment was greater, with the range changing from $14.4-$15.7 million to $17-$19 million.

The upgrade followed an improvement in the plant hire business, and the rest of the improvement looks to have been due to lower tax.

Boy, oh boy, this was one outta-the-box capital raising.

So, who better to ask about it than Casey himself?

"Look, I think in the present market conditions it's a bit hard to determine what's related to the market and what's related to the company.

"The market's obviously down, we had a good response to the raising, we've raised the $45 million. We've got a profit upgrade, we'll still deliver the earnings-a-share forecast. So, at the end of the day, we think it's a reasonably positive outcome."

Was there a bit of desperation by Nylex to get some money in?

"I don't think it's desperation, but it's clear that in the absence of an automotive divestment we had little flexibility in our banking agreement, which requires some debt reduction, and we're constrained in the use of our working capital and taking advantage of growth opportunities.

"So, in the absence of more funding from our banks for each of those three areas, it's fairly difficult for us."

Why didn't the company pitch the placement somewhat higher?

"We did place it a bit higher. We placed it at 32¢, and at the end of the day the market determines what price it is and the only basis we could get it away at $45 million in the present market conditions was 27¢...

"We tried to delay that, but again our banking agreement didn't provide us with that flexibility.

"If we had more flexibility in the working capital, the debt repayment and our growth opportunities, then obviously we wouldn't have been raising it at 27¢ in a decimated market. But at the end of the day I've got to say, we didn't have a great deal of choice."

But if Nylex hadn't made the placement, what would have happened? Would the company have gone into receivership?

"Oh, no, no, no, no. It's just that we really need to take advantage of some growth opportunities in the plant hire business.

"Our business is ahead of market guidance, the industrial business is up, the plant hire business is up, there are growth opportunities that are out there to be taken advantage of and we were having difficulty in funding the growth opportunities and therefore needed capital, in the absence of greater support from the banks," he said.

So the $45 million isn't going straight out to the banks, which include ANZ , Westpac and ABN Amro.

"$25 million of it will," he said.

What about a rights issue to all shareholders?

"We've got a share placement plan of $5 million, which is for existing shareholders, but with the requirements to fund growth, if we put it all with the shareholders, there's too much risk associated with what we'd get."

And what about Bell Potter's role in the raising? Did the firm have Nylex over a barrel on the price?

"I think that unfortunately, given the circumstances, it would be fair to say that we were a price taker."

What did he think of the shares?

"I think they're a good buy."

So was he buying any?

"I think I absolutely need to have a look at it."