Investors snub Kier’s £250m rights issue
Banks are left with £100m headache
KIER GROUP has announced that nearly two-thirds of its investors have snubbed a rights issue aimed at raising £250m, leaving a syndicate of banks nursing a £100m headache.
The construction giant, which has worked on the Trans-Pennine Tunnel road link under the Pennines between Sheffield and Manchester, had proposed to offer 64.5 million new shares at 409p each, but Kier said it had received just 37.7 per cent of acceptances.
It will fall to the banks that underwrote the rights issue to pick up around 40 per cent of the shares, amounting to around £100m.
The banks involved are Citi, HSBC and Santander, along with city brokers Peel Hunt and Numis.
The syndicate is likely to try to sell on the stock at a steep discount to the 409p price.
The remaining shares have been sold to sub-underwriters.
Kier, which recently delivered a £25m town centre scheme in the heart of the Catterick Garrison in North Yorkshire, is raising the money as it looks to reduce debt and strengthen its balance sheet.
Kier’s chief executive Haydn Mursell said: “Following the completion of the £250m rights issue, Kier enters 2019 with a strong balance sheet which puts us in an excellent competitive position.”
Explaining its rationale for the move, Kier said risks associated with its net debt position have recently increased.
This is because banks have started to reduce their exposure to the construction sector, which could impact the ability of the group to raise cash.
The construction sector has been rattled by the collapse of Carillion in January, although its demise was ultimately a boon for Kier, which has since seen its order book reach record levels of £5bn.
This work has included the provision of 350 high specification homes as part of the regeneration of the Ings area of Hull.
Business optimism in the sector hit its weakest level in almost six years in October as Brexit delayed final decisions on projects, according to several closely watched indices.
Analyst Andrew Nussey at Peel Hunt said: “In a rapidly evolving sector, Kier stands out as a market leader with the capabilities and a strong balance sheet to deliver material shareholder value.
“Kier has completed its rights issue to raise net proceeds of £250m.
“The principal reason for the raise was the risks associated with the perception that net debt was too high.
“These risks had increased significantly in the period after the 2018 results. We assume management will use £70m to selectively invest in the supply chain, with the remaining proceeds reducing net debt.”
Analyst Joe Brent at Liberum added: “We expect a re-assuring trading statement at the end of January and interims on March 20.
“Clearly the shares will be under pressure today as the underwriters are left with an overhang. However, the shares are fundamentally cheap.”
Kier Group said the economy in the Yorkshire and Humber region lies at the heart of the country, as an enduring centre of culture, industry and innovation.
“From a heritage that spans from manufacturing, textiles and agriculture to maritime and mining, the region is now also embracing many new industries to drive forward further growth and provide communities with regeneration and new opportunities,” the group said.
In recent years Kier has been generating over £2bn of wider economic activity across the whole of the North of England including in the urban and rural communities of Yorkshire and Humber.
“We are doing this by offering a breadth of capabilities across the entire region, bringing together skills from across our business and employing 5,500 people, delivering an integrated offer to our valuable customers,” the firm said.
“We have been successfully operating across the region for decades and understand the valuable role we can play in helping to generate employment, training and local investment with our supply chain partners to support ongoing regeneration and growth.”