TIMBER company Gunns Limited is in a trading halt this morning pending the announcement of a capital raising and equity investment.
Last week Gunns announced that terms for an extension of its $340 million debt facility with 10 banks had been agreed.
However, one bank in the syndicate would need board approval to continue its participation.
The decision would be made by mid February.
Gunns shares closed on Friday night at 12.5 cents valuing the company at $106 million.
The company expects to announce the capital raising and equity investment by Wednesday morning.
• Barnaby Drake:
The Gunns Drama Continues.
Today Gunns announced to the ASX and the ASX agreed:-
‘The company seeks a trading halt effective immediately, pending an announcement in respect of capital raising and equity investment.
The company expects the announcement to be made prior to market opening on Wednesday 8 February.’
It appears from the above that Gunns may have given up on finding a Joint Venture Partner and are trying to go it alone. Either that, or they are trying to put together a consortium of people to share in the cost of the pulp mill in order to find a JVC.
This looks like a very last-ditch attempt to survive. Without the mill they are done-for, but is this an opportune time to try such a venture? It could be that they are more desperate than they let on. They may need some capital injection merely to survive for the next couple of months. But, with their share price currently at 12.5 cents and debts amounting to over $500 Million what are they offering the market?
There are still three very costly court cases in the offing, any of which could put the company into liquidation. The ASIC challenge against John Gay for insider trading, which if upheld, will fuel the Class Action claim by the shareholders and in April there is the little matter of whether or not the pulp mill has got planning permission to be built.
How Gunns can contemplate a capital and equity raising exercise prior to these decisions remains a mystery.
One of two options suggests itself. Either they have got a JVP who wants Gunns to raise a large amount of capital as their share as they do not accept the $250 million investment they claim as a ‘Substantial Commencement’ and want to see a bit more equity from Gunns, or there is the second option of the Federal Government offering to support them? It is very unlikely that the State Government would be able to do this from their position of an empty Treasury, however much they may desire to do so, unless of course, Bryan Green is very successful in his mission to sell the remains of Tasmanian forests as woodchips to China!
If I were a God, I would make lobbying a Cardinal Sin!
• Download FSC briefing papers for bluegum audit and verification audit of Gunns Ltd: