By David Hargreaves
Fletcher Building has delayed the update it was going to provide to the market on Monday about its strife-torn Building and Interiors Division (B&I) and says it is currently in discussions with its lenders about the expected breaches of covenants it informed the market of last week.
The company, which signalled last week that the losses on the B&I division this year were going to be even worse than the $160 million earlier indicated, had said it would resume trading on the NZX on Monday - and would be holding a briefing for analysts and the media.
But now the company says that won't happen till Wednesday.
In explaining the request for an extension of trading halt on the shares, Fletcher said: "The request has been made because the review of the key projects in its Building and Interiors (B&I) business as part of the preparation of the Group accounts for the six months ended 31 December 2017 is still ongoing and not yet complete."
Fletcher told the NZX that as announced on 8 February 2018, the current expectation of the board is that there will be further "material" losses in the B&I business beyond what was provided for in October 2017 at the annual meeting and that once those further losses are determined and provided for, this will result in a breach of one or more of the covenants in the Group’s financing arrangements.
"Since making the 8 February announcement, the Company has commenced discussions with its lenders in relation to the expected covenant breaches."
The Company expected the trading halt to continue until the commencement of trading on Wednesday 14 February 2018 prior to which it will provide to the market an update of its review and the status of its discussions with its lenders.
Fletcher, according to its 2017 annual report owes over $1.9 billion, some of this is to the usual range of banking suspects, but intriguingly the vast majority - over $1 billion - is owed to private investors, mostly in the US and Japan.
It is probably stating the obvious to say that a delay like this is not a good sign.
While the official line from the company is that it needs more time to finish the review of the key projects in its B&I business (which include the new SkyCity International Convention Centre and the Commercial Bay waterfront project, also in Auckland), my eyes were drawn to the part of the statement that said the company has "commenced discussions with its lenders" over the expected covenant breaches.
It falls into the realm of speculation on my part, but it would be no surprise if disagreement with the lenders is the real reason for the delay.
As I've pointed out previously, a large chunk of Fletcher's debt is actually owed to private investors, which is unusual. I confess to not knowing who they are. But, private lenders potentially could react quite differently in a situation like this to bankers. Therefore reaching agreement with them to provide a waiver for the covenant breach could potentially be more problematic.
It is to be hoped that whatever is going on behind the scenes can be resolved by Wednesday and that the update - for better or worse - can be provided to the market.
In a more general sense, the timing of all this could not be more lousy, with global share markets throwing a collective tantrum over the prospect of rising interest rates and what that might entail.
It all puts further pressure on Fletcher to come out with something fairly convincing in the way of explanation - once it finally thinks it is ready.