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Kier Group shares plunge as FTSE 250-listed firm taps shareholders for around £264mln via a rights issue

Kier said it believes that risks associated with the group's net debt position have recently increased, adding that the cash call will better position it in light of tighter credit markets and more stringent tender pre-qualification requirements
Begging hands
The group is raising the cash via a 33-for-50 rights issue at a price still to be determined

Kier Group PLC (LON:KIE) saw its shares plunge on Friday on news it is tapping shareholders for around £264mln to accelerate its net debt reduction plans and strengthen the infrastructure services firm’s balance sheet.

The FTSE 250-listed group is raising the cash via a 33-for-50 rights issue at a price still to be determined. In mid-morning trading, Kier shares – the City’s most shorted stock - were 18% lower at 616.50p.

READ: Kier confident it will meet its full-year expectations, with results being weighted towards the second half

In its statement announcing the cash call, Kier said its current trading and outlook for full-year 2019 remain in line with its expectations and that the rights issue is being undertaken to reinforce the firm’s strong positions in its growing markets over the long-term.

The company said it believes, however, that the risks associated with the group's net debt position have recently increased, adding that the cash call will better position Kier in light of tighter credit markets and more stringent tender pre-qualification requirements.

Haydn Mursell, Kier’s chief executive commented: "There has been a recent change in sentiment from the credit markets towards the UK construction sector, with various lenders indicating that they will be reducing their exposure to the sector. This has led to lower confidence among other stakeholders and an increased focus on balance sheet strength. The Rights Issue is intended to address these issues, better position Kier to continue to win new business and further strengthen our market leading positions."

As of 30 June 2018, Kier had reported net debt of £185.7mln, while reported average month-end net debt for the year ended 30 June 2018 was £375mln and it calculated that its average daily net debt for the year to be around £90mln higher.

The group is forecasting a year-end net cash position for full-year 2019, targeting an annualised average net debt:EBITDA ratio of less than 1x, and targeting dividend cover of 5x underlying earnings per share in that year and, thereafter, a dividend cover of approximately 2.5x.

READ: Kier Group investors gained small victory following post-results rise for the City’s most-shorted stock

Kier said its directors believe it is important that the net proceeds of the rights Issue are reported on its balance sheet as at 31 December 2018, to enable the group to be better positioned, in light of tighter credit markets and more stringent tender pre-qualification requirements, to win new business.

The company noted that, in total, shareholders who hold shares representing approximately 32% of the company’s existing issued share capital have informed the joint bookrunners that they intend to take up their entitlement in respect of the rights issue.

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