Synthomer shares drop 33% as polymer group announces €320m rights issue
'Short-term cash preservation' move follows 18 months of challenging trading environment
London – Synthomer plc’s shares-value fell by nearly 33% – to £41.40 – on 7 Sept as the UK polymers maker announced a £276-million (€320 million) rights issue.
As part of the scheme, the group has proposed a 'six-for-one' issue of over 140.2 million new ordinary shares, valued at 197p per share.
Investors will be offered new ordinary shares at a nominal value of 1p for every 20 existing ordinary shares of 10p nominal value, added Synthomer's 6 Sept announcement.
Synthomer's earnings had fallen “temporarily but significantly”, which combined with financing the Eastman acquisition, led to “leverage” increasing significantly, to 5.5 times earnings.
With the capital restructuring move, the London group aims to reduce this measure of the group's ability to cover its debt from earnings – to 3.8 times earnings.
The move, it said, follows "18 months of navigating an extremely challenging market backdrop”, with weakened demand in most end-markets and geographies.
Trading difficulties were further “exacerbated” by supply-chain disruptions and sustained higher raw material and energy costs across the group.
Events, including the Covid pandemic and the Russian war against Ukraine, have also impacted Synthomer's performance over the last two years.
While the Covid pandemic initially boosted demand for nitrile butadiene rubber latex used in medical gloves, the market has since entered a severe oversupply situation.
Ongoing Russian military action in Ukraine has also caused economic volatility, impacting the group’s supply-chain, costs, and energy prices.
“High inflation and interest rate rises slowed industrial activity and reduced demand in most of the group’s markets, worsened by competition from Asia,” Synthomer added.
To navigate the current challenging environment, Synthomer said it had taken “substantial and decisive actions” to preserve cash and manage debt.
The rights issue, it added, will enable the group to increase focus on “strategic delivery and long-term value creation in addition to short-term cash preservation”.
As of close of business 11 Sept, Synthomer shares were traded at £47.66 on the London Stock Exchange.