RCR Tomlinson is seeking to raise $100 million in a deeply discounted offer to shareholders as it seeks to steady its finances after being forced to take $57 million in write downs and other costs on a Queensland solar energy project.
But if it can’t raise half of the $100 million, the company’s future is in doubt, directors have warned. We could know later today or tomorrow what the situation is with the fund raising and the company’s future.
The company wants to raise the money at a price of $1 a share, down 64.3% from the last sale of $2.80 a share in late July when the shares were suspended at the company’s request after problems with cost overruns were found in July.
The deal was a one-for-1.65 pro-rata non-renounceable rights issue, accelerated for institutional investors. The company raised $87.9 million a year ago this month in an institutional placement.
If RCR cannot raise at least $50 million in the latest equity raising, which is being underwritten by Macquarie, and cannot get “ongoing support” from its banks, it may not be able to continue as “going concern,” the company warned yesterday (page 8 of the report).
“There has been no demand for repayment by the financiers as at the date of this report,” the company said in that report.
The company’s shares are scheduled to resume trading tomorrow (Thursday) when the bulk of the issue is expected to be done.
The money will go a long way to recapitalising the company, including the payment of $57 million associated with one cost overruns on its Daydream Solar Farm and Hayman Solar Farm contract.
The injection is also needed to “avoid risk of breaching financial covenants under its syndicated facility agreement following release of its FY18 results” according to media reports yesterday.
RCR was awarded a $315 million contract to build and operate the two solar farms, which are near Collinsville in northern Queensland, for Edify Energy midway through 2017.
It was supposed to be part of a major diversification for the company away from its usual engineering and contracting business by the now former CEO, Paul Dalgliesh who left earlier this month.
The write-downs are due to delays, unexpectedly poor sub-surface ground conditions, and bad weather, RCR told the ASX yesterday.
“These project-specific issues required the company to continuously revise its execution methodologies to mitigate delays, leading to increases in subcontractor costs (both people and plant) and logistics cost overruns."
RCR will not pay a final dividend in 2017-18 compared with a 6 cents a share in 2016-17 and an interim dividend for 2017-18 of 2.5 cents a share.
RCR had $89.9 million of cash as of June 30, but needs to pay out $35 million for additional costs on the solar projects, and another $30 million to suppliers.
It has a $75 million working capital facility. Its banks will provide an additional $25 million of working capital, but will reduce its bank guarantee facility – which has a $295 million limit – by the same amount.
RCR said 2017-18 revenue from continuing operations was $1,998.5 million, up 58.2% on the prior comparative period, Underlying EBIT was a loss of $4.2 million, including $57 million in cumulative write-downs on the solar project, and a statutory net loss after tax of $16.1 million.
But there are other projects causing problems. The company told the ASX yesterday that "Aside from the cost overruns experienced at the Project, RCR continues to operate across a large number of projects which, typical of a contracting business, experience some variance to tendered margins.”
"The Board is working with RCR’s Management, now being led by Mr James, to take immediate action to enhance the Company’s systems and to re-position the Company towards a more acceptable risk profile. An important element of RCR’s near term strategy is to focus on projects that use ‘alliance style’ contracting models, which are more working capital intensive, but offer a more favourable risk allocation to RCR as the contractor and should provide a higher degree of margin predictability relative to fixed price Engineering, Procurement and Construction (“EPC”) contracts.
"With the support of our existing financiers and the underwritten Entitlement Offer, RCR is in a strong financial position, trading on a business as usual basis, and is well placed to deliver for its customers and shareholders,“ directors said yesterday.