STEEL group Severfield-Rowen insisted a heavily-discounted rights issue will fix its balance sheet and give it firepower for growth.
The group yesterday confirmed a £48m rights issue, which will raise almost £45m after expenses.
Severfield was forced to seek emergency funds after uncovering heavy losses on contracts including the Cheesegrater skyscraper in London.
The fundraising will dilute the Thirsk-based structural steel contractor’s shares by almost 70 per cent, with participating investors receiving seven shares for every three they hold.
“Once we have completed the rights issue we will have the strongest balance sheet by far in our sector,” said executive chairman John Dodds, who replaced former chief executive Tom Haughey in January. “We have a very good business that’s temporarily lost its way. I will ensure that the business re-finds its way. We have an ongoing and successful future.”
The issue of up to 208.25m shares will be priced at 23p each. That is a discount of 67.8 per cent to Wednesday’s close, and just a fraction of the 120p its shares commanded before it revealed the contract woes in January.
“It’s a fruitless discussion to talk about the share price,” said Mr Dodds, the former chief executive of construction group Kier. “The market is the market and the market makes the judgement call. We are where we are.”
He said he has canvassed investors holding more than 60 per cent of its shares and met “terrific support”.
Severfield will use the proceeds to eliminate net debt, which stood at £44m in mid-February.
Its lenders Royal Bank of Scotland and Yorkshire Bank have also agreed to a revised debt facility of £35m – subject to the rights issue being approved at a vote on March 18. Severfield warned the company could collapse if the rights issue is unsuccessful.
Severfield yesterday reported pre-tax losses of £23.3m for 2012, compared with £6.8m profits a year earlier. Revenues of £256.6m compared with £267.8m a year earlier.
Mr Dodds said Severfield has had “huge support” among customers and has continued to win contracts since the problems were uncovered in January. “We can still turn around to our client base and point to the two tallest structures in London and say we built them.”
Mr Dodds added there are no plans for redundancies among the group’s 1,300 UK staff.