UK-based driveline components supplier GKN has revealed a GBP423m rights issue as it seeks to bolster its finances.
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Sir Kevin Smith, GKN chief executive, told the Financial Times that the cash call would be a cheaper option than the rearrangement of borrowing facilities with banks after GKN lost its investment grade status last year.
He insisted the move was the result of a “challenging environment” rather than GKN being a “troubled” company, the newspaper said.
Analysts says that many companies are rushing to capitalise on improving sentiment towards rights issues, after a rebound in shares since March. Furthermore, banks are still reluctant to lend money when companies badly need cash.
The capital raising should allow GKN to avoid the costs and anticipated higher charges that would be associated with refinancing its existing debt facilities.
“We have a GBP350m revolving credit facility that matures in July next year and we’ve been considering how best to replace that,” Sir Kevin told the FT.
“The overall financing package that is available to us now – particularly as we lost our investment grade status through the back end of last year – is much less advantageous. We looked at the option to replace the revolving credit facility but we would have had to accept significantly higher borrowing charges and more onerous covenants.”
GKN aims to win back its investment grade status ahead of the maturity of a further GBP325m of bonds in 2012, the FT reported.
GKN is being adversely affected by the contraction in global vehicle demand and production this year. Although the company returned to trading profit in March, Sir Kevin told the FT that the outlook for the rest of the year was uncertain.
