ANZ to rescue after Forge's power station problems
ANZ could emerge as the largest shareholder in Forge Group following a deal that has allowed the troubled engineer to continue trading after its balance sheet was hurt due to two bad contracts.
Under the deal, the bank is to provide an immediate $60 million working capital facility, up from $11 million, while deferring quarterly principal repayments of an existing facility for the next three quarters.
Additionally, ANZ is to receive warrants equal to 13 per cent of Forge's capital.
"Liquidity is stable now ... this is a debt fix," Forge's chief executive, David Simpson, said of the deal.
The collapse in the company's share price on Thursday means Forge is unable to raise funds from equity markets any time soon.
The share price slumped after it disclosed $127 million in losses on two power station contracts, which will result in a gross loss of as much as $90 million this financial year.
Forge shares dived to close at 68.5¢, down 83.6 per cent on the day, though well clear of the low of 28.5¢.
Before the November 4 trading suspension, the shares were worth $4.18, valuing the company at $360 million. This was already well down from its September high of $6 a share.
Forge said its loss before interest, tax, depreciation and amortisation for fiscal 2014 would be $85 million to $90 million. Putting the write-down to one side, the gross profit as measured by EBITDA would be $45 million to $50 million.
Forge has encountered heavy losses on the construction of the Diamantina power station in western Queensland and the West Angelas power station in Western Australia.
In both cases, it made extensive use of subcontractors, which left it exposed to cost blowouts from contract variations, coupled with poor project management.
Typically, Forge does not use subcontractors, which allows clearer cost management of complex projects.
"I'm the CEO. I'm the head of the train," Mr Simpson said. "The board holds me responsible."
The problems with the contracts only emerged in October, which prompted a fuller assessment of the extent of the problems.
The troubled contracts were inherited from the acquisition of CTEC in early 2012, which used subcontractors extensively for the two power stations. Mr Simpson took over as CEO in mid-2012.
Forge traditionally manages the work in-house, giving it direct control over the work under way and any contract variations.