Billabong Halts Shares Awaiting Refinancing, Asset Sales

Billabong International Ltd., the surfwear company that’s lost 76 percent of its market value over the past year, halted trading of its shares citing developments in refinancing and asset-sale plans.

The Australian retailer will keep the shares suspended until the start of trade on July 18, unless it makes another statement before then, the company said in a regulatory statement today.

Billabong said last month it’s looking to sell its Canadian retail chain West 49 after the company breached terms on its debt. The retailer said it was in talks with Sycamore Partners Management and Altamont Capital Partners over possible refinancing and asset-sale deals to repay loans.

“They’re at the firesale point where they need to refinance the balance sheet. They’re going to have to take massive writedowns,” Evan Lucas, a market strategist at IG Markets Ltd. in Melbourne, said by phone. “They grew too fast and leveraged themselves too hard.”

Five members of its banking syndicate have already sold out of their loan holdings, three people familiar with the matter said July 3.

Billabong shares had fallen 2 percent to 25 Australian cents before they were halted today. The company, whose market value rose as high as A$3.84 billion ($3.5 billion) in June 2007, is now priced at about A$120 million after it shut stores, fired employees, and sold new shares to raise cash as a consumer slump in its home market and the weak European economy weighed on earnings.

Debt Burden

Separate talks with Sycamore and Altamont were “well advanced”, the company said June 25, adding that there was no guarantee that anything would be agreed on. Distressed-debt investors Oaktree Capital Management and Centerbridge Partners bought at least A$280 million of senior loans from Billabong’s syndicate, the Wall Street Journal reported July 4 without saying where it got the information.

Billabong has A$651 million in debt facilities due to be repaid by July next year, with A$152 million of net debt drawn at the end of December.

The company is also contracted to spend A$464 million on rent and buying products from suppliers from July 1, according to its most recent annual report. Billabong bought West 49 for C$92 million ($88 million) in 2010, according to data compiled by Bloomberg. The purchase gave it 138 retail stores across Canada.

“The trading halt is necessary so that the market is able to trade on a fully informed basis,” Billabong, Australia’s largest surfwear company, said in today’s statement. Spokesmen for Altamont and Sycamore didn’t respond to e-mails sent outside of U.S. office hours seeking comment.

Market Capitalization

Equity in the business is now worth little more than half the A$225 million it raised selling new stock to shareholders last year. It’s also less than the value of about A$289 million put on its inventory of clothes and accessories at Dec. 31, according to the company’s most recent balance sheet.

“The fact that their market cap is under what their inventory level was in December is indicative,” IG Market’s Lucas said.

Stores including Inditex SA’s Zara, Hennes & Mauritz AB, and Arcadia Group Plc’s Topshop have undermined the business, Lucas said. “It’s been completely decimated by these guys selling similar quality clothing at lower prices,” he said.

Billabong’s brands, which include DaKine, Element, and RVCA, were valued at A$614 million before a 38 percent writedown at annual results last June, and were further written down to A$149 million at the end of December.

Brand Value

The Billabong brand is estimated by the company to be worth A$30 million at the end of last year, or just 6.8 percent of A$435 million value in December 2011.

Rebuilding the brand will have to take place against the backdrop of sales expected to fall to a six-year low this year, based on the average of 10 analysts’ estimates compiled by Bloomberg.

Earnings before interest, tax, depreciation and amortization may fall to A$50 million by 2015 as wholesale earnings decline and at that level equity value of the company is zero, Credit Suisse Group AG analyst Grant Saligari wrote in a note to clients March 20. The measure will be between A$67 million and A$74 million in 2013, Billabong said June 4.