Nerves of steel

Bisalloy Steels is defying tumbling financial markets to make a capital raising that could result in private equity firm Anchorage Capital Partners, headed by Bisalloy chairman Phil Cave, emerging as a significant shareholder.

Anchorage has agreed to sub-underwrite the $20.9 million rights issue, which could deliver up to 44.4 per cent of the steel plate manufacturer to the buyout firm, depending on the number of acceptances.

The four-for-five rights issue is being pitched at 25c-a-share, only a 7.4 per cent discount to the last closing price of 27c, but well below the $1-a-share buyout proposal that came from a private consortium last year that was rejected by the board.

The rights issue comes just a few weeks after Bisalloy completed the sale of its Atlas Distribution business to a consortium of private equity firm Greenstone Partners and Balron Nominees, for around $75 million. That was the same consortium that made the rejected takeover bid last year.

Bisalloy now says it wants to raise the $20.9 million to provide working capital. ABN Amro Morgans is acting as lead manager and underwriter, but Anchorage has agreed to take up the entire shortfall.

Cave, who owns 3.6 per cent of Bisalloy, owns a 40 per cent stake in Anchorage, which was established last year as a successor to his boutique investment and advisory firm Interbank Capital. Cave owns a 10 per cent stake in the ACP 1 Fund, while Bisalloy director and former CEO Kym Godson owns 3.5 per cent of the fund.

The ACP 1 Fund, in August, completed the first $100 million round of a planned $200 million raising. It says it specialises in "special situation" stocks such as Bisalloy.

If Anchorage takes up all the shares it will, for $20.9 million, purchase a near half share in a company which the prospectus says anticipates EBIT of $27.3 million in fiscal 2009 and a net profit of $14 million.

ABN Amro Morgans will receive a management fee of $120,000 for the rights issue, as well as an underwriting fee of 2.25 per cent of the money raised, or $450,000. However, most of that fee will be passed on to Anchorage, which receives a sub-underwriting fee of 1.5 per cent, or $313,500.

Freehills will receive a $150,000 fee for legal work, while Ernst & Young receives a total of $130,000 for various accounting assignments.

The rights issue prospectus also reveals that transaction costs for the sale of Atlas Distribution totalled $4.28 million. An ABN Amro team led by Nick Rowe advised on that sale.

Godson received a $500,000 "retention payment" upon the sale of the business, although he has since stepped down from his role as CEO to become a non-executive director.