Bauer shares plunge after warning it will breach debt covenants

Tue Oct 29, 2013 8:36am EDT

* Expects to reach a solution with creditors

* Cuts profit target for second time this year

* Shares fall as much as 21 pct to low of 17.16 eur

By Christiaan Hetzner

FRANKFURT, Oct 29 (Reuters) - Shares in Bauer lost about a fifth of their value on Tuesday after the German construction and machinery group said it expected to breach covenants which could lead to creditors calling in 200 million euros ($276 million) worth of debt.

The company also cut its full-year profit target for the second time, and its shares were down 18.8 percent to 17.61 euros at 1036 GMT. The broader German smallcap index was flat.

"This is yet another blow to the credibility of Bauer's forecasts as it follows several earlier misses of guidance," Equinet analyst Holger Schmidt said, reiterating his "reduce" rating.

Bauer specialises in products and services for civil engineering and the exploration of natural resources. It cited problems in most of its businesses for the cut in profit forecast, blaming a weakness in the global construction market.

It unexpectedly booked a charge of 20 million euros from a job building water wells in Jordan - almost all the project's anticipated earnings.

"Virtually every receivable still outstanding has been written off, since we no longer anticipate that we will receive anything for it," a spokesman said, blaming delays and cost overruns for the project's problems.

The company, which employs over 10,000 people in about 70 countries, said it planned 20 million euros in cost cuts, mostly next year. It said this would involve shrinking the workforce through natural attrition, but declined to comment on the scale.

Due to the breach of covenants which relate to the ratio between the firm's liabilities and earnings, the firm's 10 to 20 creditor banks could technically call the 200 million euros of debt in at the start of next year, but the company said it did not expect that to happen.

"The Bauer group expects that an acceptable solution will be found in consultation with its financial partners. Covenants will be met again next year in line with the group's financial planning," it had said late on Monday.

LOSS EXPECTED

Since the seasonally strong fourth quarter is only expected to be slightly profitable, Bauer now expects a net loss of about 20 million euros instead of the 20 million euro net profit previously anticipated.

In August, the company had cut its forecast from 30 million euros.

Chief Executive Thomas Bauer qualified comments made on Monday in a statement after the close of markets that said the group was considering "withdrawing from a number of minor, economically challenging businesses" as part of the cost cuts.

"We are not planning for any major disposal of assets," he said.

A spokesman said the firm, which has over 110 subsidiaries worldwide, may fold some operations together and withdraw from individual markets where the construction business is no longer profitable.

CEO Bauer did not rule out raising capital through a share sale in the future. "At the moment we are not thinking about a capital increase but we also never say no to this, this is something we have to check for the future," he said.

He declined to speculate on whether the Bauer family, which is the biggest shareholder with a 48 percent stake in the firm, would potentially participate in such a stock sale.

Net debt is forecast to finish the year at just under 680 million euros, meaning liabilities will be 5 to 6 times higher than its annual earnings before interest, taxes, depreciation and amortisation (EBITDA).

Promissory notes issued stipulated however that net debt must not reach 4 times its EBITDA, while some of its long-term loans required a ratio of less than 4.75 times.

($1 = 0.7254 euros) (Reporting by Christiaan Hetzner; Editing by Pravin Char)