Fletcher under asset-sale pressure
Construction giant Fletcher Building is unlikely to fail but may well be forced to sell an asset to cover its losses, an analyst says.
The company’s shares have gone into a trading halt on the NZX and ASX, amid a warning that more losses were expected in its building and interiors unit, which would breach one or more of its banking covenants.
A KPMG review of Fletcher’s finances in October forecast a $160 million loss, after major cost blowouts in the previous financial year on two key projects, Skycity’s New Zealand International Convention Centre and the Christchurch justice and emergency services precinct.
Fletcher Building told shareholders yesterday morning that although the review was continuing, the losses would be larger.
‘‘Once the extent of those further losses is determined and provided for, it is expected that this would result in a breach of one or more of the covenants in the group’s financing arrangements.’’
The trading halt is expected to be lifted when the sharemarket opens on Monday.
Grant Davies, an analyst with brokerage Hamilton Hindin Greene, said Fletcher would have to come up with a way to shore up its balance sheet ‘‘one way or another’’.
The company might strike an agreement with its banks or sell a business, and the degree to which investors punished the company depended on the solution.
He said the shame of it was that most of the wider business – in infrastructure, building supplies and residential construction – was sound.
‘‘I don’t think there’s a risk of Fletcher Building going to the wall. Ninety per cent of the business is functioning quite well.’’
Fletcher was a company which had bought and sold businesses quite regularly in the past, Davies said.
‘‘You get the feeling ... the parts are greater than the sum of those parts, and there’s certainly some high-quality businesses within the stable that they’ve got.
‘‘It’s just there’s one business unit in particular that’s been dragging the business down over the last 18 months.’’
Fletcher did not say whether whether it was considering selling its building and interiors division, but rumours have swirled for months in Australian investment circles that potential buyers were looking over its assets.
They included Spanish company Acciona, which is already a partner in some of Fletcher’s infrastructure projects, and a number of Chinese construction businesses.
Fletcher’s construction division, to which the building and interiors arm belongs, is a relatively small part of the company’s overall business, valued at about $206m.
The company’s big money is in building products ($3.3 billion), followed by its international businesses (including Laminex and Formica) and its distribution business.
Greenstone Group property consultancy managing director Phil Eaton said the entry of new competitors might not be a bad thing given the way the market was stretched.
‘‘The market needs more experience and it needs some fresh blood and clearly the construction market is struggling with costs, so anybody who can bring some more vertical integration from overseas would be welcome in the market.’’