Chemring Falls on Share Sale as $28 Oil Slows Mideast Purchases

  • Defense supplier slumps as much as 11 percent in London
  • Full-year loss before tax widens to 9.1 million pounds

Chemring Group Plc fell the most in three months after the defense supplier proposed selling 80.8 million pounds ($114 million) of shares to repay debt and said tumbling oil prices are placing pressure on Middle East defense budgets, slowing the delivery of potential orders.

The shares sank 9 percent to 162 pence at 10:45 a.m. in London. The stock fell as much as 12 percent, the most since Oct. 27. Chemring has lost almost a third of its value since the Fareham, England-based company said in October it was struggling to meet debt obligations following delays to an order for 40-millimeter grenade cartridges for an unnamed Middle Eastern state.

Chemring will offer shareholders the right to buy four new shares at 94 pence each for every nine existing shares, the company said in a statement Thursday. The price is a 47 percent discount to Wednesday’s closing level. The proceeds, after fees, will total 75.2 million pounds, which will be used to redeem 48.5 million pounds of debt and for restructuring programs including a shake-up of the company’s U.S. operations.

The company, which supplies armaments and countermeasures used by fighter jets to ward off missiles, said it had collected a record order book for this year. Still, Chief Executive Officer Michael Flowers said the slump in oil prices could prolong an already long Middle East procurement process.

Chairman Departs

“In the Middle East, obviously, a significant threat has been driving a significant increase in expenditure,” Flowers said in a phone interview. “However, we are starting to see a little bit of softness, some delays in some decisions, that’s clearly on the back of a $20-something oil price.”

Full-year loss before tax fell to 9.1 million pounds from 5.2 million pounds a year earlier, Chemring said in a separate statement Thursday. Chairman Peter Hickson will step down from the board as soon as replacement can be found because it’s time to reshape the board of directors, the company said.

“We have been bumping up against debt covenants for the last three years or so,” Flowers said adding that the raised funds will allow him “to manage the business on behalf of the equity holders rather than constantly managing the debt and the covenants.”

The rights issue is fully underwritten by Investec Plc and JPMorgan Chase & Co., which are arranging the sale, and Barclays Plc, which is also participating.

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