UK: Rexam plots rights issue, forecasts grim 2009
Drinks packaging giant Rexam plans to raise GBP350m (US$574m) via a share rights issue in order to protect its investment grade credit rating.
Rexam will issue nearly 234m shares at GBP1.5 each and expects to raise a net GBP334m after costs, the drinks can firm said today (29 July).
Worse than expected trading in the recession has forced Rexam into the rights issue, due to management concern that the group could lose its investment grade credit rating.
"Since the interim management Statement in May it has become increasingly clear that the effect of the recession on Rexam's trading will be deeper and more prolonged than previously thought with cyclical, more premium parts of the business disproportionately impacted by the downturn," said the company.
"Destocking has given way to reduced underlying customer demand reducing the Group's ability to generate cash and pay down debt," said the group.
Like-for-like net sales and operating profits fell by 6% and 20% respectively for the first six months of 2009, compared to the same period last year, the firm said in a trading update today.
Yesterday, Rexam said in a statement that the risk of losing its investment grade credit rating had become "unacceptably high". In March 2009, S&P downgraded Rexam to the lowest investment grade rating (BBB-).
The firm added today: "The loss of investment grade rating would be detrimental to the group, both in terms of the cost and the availability of future credit, and would lead to a significant transfer of value from shareholders to debt providers."
Rexam has cut capital expenditure for 2009 by GBP50m, to GBP200m, compared to its initial guidance for the year.
Plant closures and job cuts, particularly in the US, are expected to yield annual cost savings of GBP75m from 2010.
Rexam CEO Leslie Van de Walle said he saw "no upturn in trading conditions through the rest of 2009". However, he said: "Rexam remains a strong, profitable and well invested global business with leading positions in many markets that remain attractive in the medium and long term."
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