Nufarm: Short Term Bank Deal Relieves Pressure

By Glenn Dyer | More Articles by Glenn Dyer

Embattled agri-chemicals group, Nufarm has won a bit more time from its banks on loan agreement breaches ahead of the release of full year figures later today.

The company also told the ASX yesterday there would be no dividend for shareholders in the 2010 results.

No mention was made when dividends would resume. 

Nor was there any mention of the price the company would pay for the extension, or the new rules surrounding the extra time.

The waiver will remain in place until the end of next month while Nufarm seeks to reach a longer-term solution on its finances.

Nufarm shares were suspended while the announcement was made.

They traded up 4% to a high of $4.22 after the statement, but then fell back to end around $4.10, up 5c or 1.2%.

The agreement includes an undertaking by Nufarm to provide security over its assets. 

Nufarm has also agreed on a short-term funding facility with its lenders through to mid-December, to meet all its repayments which fall due by the end of the year.

The company said the funding facility is subject to satisfactory performance against ‘‘interim milestones based on the company’s own projections and objectives’’ as well as ‘‘progress relating to strategy and management plans’’, as agreed with its lenders.

Nufarm has yet to reveal further details on the stop-gap measure, or at what cost it will come.

Managing director Doug Rathbone said he ‘‘is now working with its lenders to establish a more efficient long-term banking structure’’.

Mr Rathbone said he was hopeful of finalising that structure by mid-December. Nufarm had originally indicated it hoped to have reached an agreement by mid-September.

Yesterday’s agreement came after the company started talks with its bankers in July following the slashing of profit estimates for the 2010 year.

Nufarm halved its full-year earnings forecast and revealed it was in breach of one of its three key banking covenants.

Then earlier this month, Nufarm further shocked the market by revealing that its debt had jumped 37% to $620 million, triggering a second covenant breach.

What made that almost impossible to believe was the disclosure the increase happened in the final two weeks of July, which were also the last two weeks of the company’s financial year.

That gave rise to fears the company had financed sales of extra chemicals to customers, much in the way that Sigma Pharmaceuticals had boosted debt by financing sales to customers ahead of the end of its financial year last January.

The company said net debt at the end of Nufarm’s financial year would be around $620 million, compared to its estimate of about $450 million provided on July 14.

Analysts expect Nufarm’s full-year net operating profit to be at the lower end of its guidance – between $55 million and $65 million – when it announces its results today.

That’s well below guidance issued in March for an operating result of $110 million to $130 million.

Management changes will be needed in coming months to help win back the confidence of the market.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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