Kier Group PLC (LON:KIE) saw its shares drop over 10% on Thursday after the construction contractor revealed that just 38% of its rights issue shares were taken up by shareholders, although the underwritten cash call will still net the firm £250mln.
The FTSE 250-listed construction firm announced the 33-for-50 rights issue in November and was looking to issue 64.5mln new shares at 409p each.
READ: Kier Group shares plunge as FTSE 250-listed firm taps shareholders for around £264mln via a rights issue
However, just 24.3mln of the shares were taken up, and the joint bookrunners – Peel Hunt, Numis, Citigroup, HSBC Holdings, Banco Santander - will now have to try and find subscribers for the remaining stock at the rights price or else will have to take them on themselves as underwriters
At the time of its launch, Kier had noted that shareholders representing approximately 32% of the company’s existing issued share capital had informed the bookrunners that they intended to take up their entitlement in respect of the rights issue.
Kier Group said then that the rights issue was being undertaken to reinforce strong positions in its growing markets over the long-term.
The company added that it believed, however, that the risks associated with the group's net debt position have recently increased, and that the cash call will better position Kier in light of tighter credit markets and more stringent tender pre-qualification requirements.
In a brief statement on Thursday announcing the rights issue result, Kier Group’s chief executive Haydn Mursell simply said: "Following the completion of the £250mln rights issue, Kier enters 2019 with a strong balance sheet which puts us in an excellent competitive position."
Serious questions to be asked
Russ Mould, investment director at AJ Bell said: “This low level of acceptance is a huge embarrassment for the management who probably thought they were being proactive with raising money before more serious questions were asked about the strength of its balance sheet.”
He added; “While Kier still gets the full amount of money because the rights issue was fully underwritten by five banks and brokers, its credibility will remain in tatters because of the poor take-up by shareholders. If your investors can’t back you in times of need, when can you count on them?”
Mould continued: “You can perhaps understand why Kier is one of the most shorted stocks on the market. It has been targeted by people betting on a decline in its share price because of high debt levels and exposure to an industry beset by contract delays and cost overruns. These same issues also applied to Carillion which went bust earlier this year.
“Kier follows the same model as Carillion in using supply chain finance, whereby suppliers sell their invoices to a bank at a discount and effectively get paid immediately. The bank then collects from Kier later on. This boosts its working capital in the short-term but arguably obscures the true state of its balance sheet.”
In early afternoon trading, Kier shares were 4.6% lower at 367.40p, above the early session low of 335p.
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