Incitec Pivot seeks $675m to strengthen balance sheet, dumps dividend

Incitec Pivot boss Jeanne Johns says the company's $675 million capital raise is a pre-emptive move to strengthen its balance sheet in uncertain economic times and is separate to the decision to keep its fertiliser business.

The $3.5 billion ASX-listed fertiliser and explosives manufacturer went into a trading halt on Monday as it became the latest in a growing list of companies to announce a capital raise to ride out the coronavirus pandemic.

Incitec Pivot chief executive Jeanne Johns says the company is "well placed" to benefit from any future improvement in global fertiliser prices.Credit: Dominic Lorrimer

It will raise $600 million via a fully underwritten institutional placement and up to a further $75 million via a non-underwritten share purchase plan. The program will cut the company's net debt to $1.27 billion. New shares issued under the institutional placement will cost $2 each, an 8.7 per cent discount to the stock's last closing price of $2.19.

"We really don't know what's ahead of us," Ms Johns said of the impact from the coronavirus pandemic. "We felt ... we should do this as a prudent measure, in the face of so many unknowables at this time."

The move comes just two weeks after Incitec concluded a review of its fertiliser division and decided to keep rather than sell it. The division is a major supplier of fertiliser to east coast Australian farmers and has seen demand for its products soar in recent months after substantial rain in cropping districts.

Ms Johns said the business attracted interest from a number of parties but the process was interrupted by COVID-19. "Executing an international M&A [mergers and acquisitions] deal when people can't come to the country and check out the assets is just really not workable. But also people were distracted by their own operations as they were coping with COVID-19, and there was a general risk-off environment in the marketplace," she said.

Incitec Pivot's explosive products are widely used in the mining industry.Credit: Michele Mossop

She rejected suggestions the company needed to raise capital because it had not sold the fertiliser division, stressing the two decisions were separate and the company wanted a strong balance sheet for whatever challenges eventuated. "It was never about one or the other, it was really about what's in the shareholders' best interest," she said.

Ms Johns said the fertiliser arm was a solid business that serviced a fundamental industry, provided resilience in the uncertain environment of COVID-19 and had strong upside as commodity prices improved.

The company, which is also a major supplier of explosives to the mining industry, brought forward its first-half results to coincide with the capital raise announcement.

Statutory net profit rose 22 per cent to $65 million, while earnings before interest and tax (EBIT) rose 34 per cent to $159 million. But Incitec Pivot also joined the ranks of companies that have ditched their interim dividend to preserve cash.

In a note to clients, UBS analyst Nathan Reilly said Incitec Pivot's first-half financial result was broadly in line with UBS estimates, while the $675 million capital raise would give it extra flexibility.