Boral axes Knauf deal, slashes spending

Boral has canned a plasterboard venture with Germany's Knauf and slashed up to 20pc of planned spending this year.

A Boral plant in Sydney. Picture: AAP

Building materials supplier Boral has canned its original plasterboard venture with Germany's Knauf and slashed up to 20 per cent of planned spending this year as construction demand tanks due to the COVID-19 pandemic.

A long-awaited $US441m deal unveiled last August with Knauf will fail to be completed by a June 30 sunset date due to issues receiving regulatory approvals.

Boral had proposed paying $US200m for the remaining 50 per cent stake of USG Boral in Australia and $US241m for a half share of the Asian venture.

Under the deal, Knauf had a call option to buy the half stake back within five years for the Australian USG stake.

Boral had already flagged the Australian Competition and Consumer Commission was unlikely to approve the call option and said it was "now clear" it was not able to obtain a green light from regulators by the sunset date. Other unnamed conditions to the transaction also remain outstanding.

A $US400m acquisition bridge loan was allowed to lapse with the two companies now working on a "cash neutral" deal that doesn't involve any significant funding for Boral. The company has $890m of cash with no debt covenants based on earnings.

Capital expenditure will also be cut to $330m from $400m representing a 15 per cent to 20 per cent reduction due to uncertainty around the duration and extent of coronavirus shutdown measures.

Falling demand in most markets is expected to accelerate with substantial reductions in the pipeline of work in residential construction markets.

"As a result, where we have sufficient inventory levels to supply customers, production curtailments are planned and are taking place, including shift reductions and temporary plant closures. These actions will help to conserve cash and minimise any unintended inventory build-up," Boral said.

Staff hit by closures are accessing both paid and unpaid leave along with government support.

In North America and Asia, several operations have been temporarily closed due to more stringent shutdown mandates.

Still, in most jurisdictions its operations are considered essential, including its US fly ash business.

Boral faces three months of severely reduced demand for its products due to the coronavirus, with significant cuts to house growth in Australia and the US and commercial construction likely delayed or cancelled, ratings agency Moody's said on April 8.

The outlook for all of Boral's credit ratings was lowered to negative from stable by Moody's although its overall Baa2 ratings were affirmed. S&P lowered its outlook on Boral on March 30 to negative from stable and affirmed its BBB long-term rating on the company, warning it faced a significant earnings cut and cash flow pressures.