trading halt, page-100

Forge Group's trading halt stirs speculation of more bad news

PAUL GARVEY |
The Australian |
January 11, 2014 12:00AM

The roller-coaster ride that is Forge Group looks set to take another significant twist, the company's latest trading halt sparking speculation of more bad news and a potential equity raising.

The Perth-based mining contractor entered the halt early yesterday, issuing only a brief statement to explain the move.

"Forge Group is seeking the trading halt pending an announcement providing a material update on the financial position of Forge Group and its subsidiaries," the company said.

The language in the statement triggered talk that further operational problems could have surfaced at the company, after problems with two power station contracts triggered a spectacular share price meltdown in November.

Shares in Forge plummeted from $4.18 to as low as 28.5c in a single day after it revealed it would need to spend $45 million more than first thought to complete the Diamantina and West Angelas power stations in Queensland and Western Australia respectively.

Those issues took Forge to the brink of collapse, before ANZ Banking Group agreed to extend its existing facilities rather than push the group into administration.

The company also seriously considered an equity raising at that time, but baulked at the significant dilution that would result from such a move.

Sources told The Weekend Australian there were ongoing concerns that further problems could still emerge from the Diamantina and West Angelas projects, with the original cost blowout figure only an estimate.

The company's less advanced power station contracts are also seen as a possible source of bad news, given that they were signed up under the same management team that conceived the troubled Diamantina and West Angelas contracts.

"Either it will be bad news or they will get an equity injection away, I would have thought," said one analyst who did not want to be named.

"They obviously mulled around an equity raising not too long ago, but couldn't get it away. Now that the price has settled down they might look at it again."

Forge shares had begun to recover in the wake of the November carnage, rallying to as high as $1.965 a share late last month as it confirmed it had secured other contracts, including work at Gina Rinehart's Roy Hill iron ore project.

Forge last traded at $1.25 a share on Thursday.

At that price, any equity raising would be priced well above the levels of late November and cause far less dilution of existing holders.

A recovery appeared to be gathering momentum recently, with the world's biggest asset manager, BlackRock, emerging as a significant shareholder on January 3.

However, BlackRock's position was short-lived, as the group dropped back below the 5 per cent ownership threshold just three days later.

A number of investment banks have been swirling around Forge in recent months, proposing both equity raisings and potential asset sales that would provide more strength to the company's balance sheet.
Goldman Sachs looked at handling an equity raising for the group in November but is understood to no longer be involved.

At least one European contracting group is believed to have been sniffing around Forge, eyeing both its assets and a possible position in the company.

KordaMentha has previously been reported as being brought in by ANZ as adviser.

The November issues came at the end of a protracted 24-day trading halt.

Sources said Forge was unlikely to win any such leeway from the ASX for an extended halt this time around.

Forge traded as high as $6.98 a share last March, with the company previously considered one of the contracting sector's better performers because of its diversification into power stations.

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