Fletcher to reset interest on notes

Peter McIntyre.
Peter McIntyre.
Fletcher Building can expect a large benefit from declining funding costs when it rolls over $75 million of capital notes in mid-March, resetting the interest rate down by 3.5%.

At present, the long-term corporate bonds are offering 8.9%, but will decline by 3.5%, to 5.4% in mid-March, for the new term until mid-March 2019.

Craigs Investment Partners broker Peter McIntyre said Fletcher carried about $1.6 billion in ''laddered'' debt, coming due at different times and its bottom-line would benefit from paying out less interest. Carrying less debt would be positive for the share value.

While capital note holders would be offered less interest, they would consider staying with Fletcher as it remained a well-capitalised company, and at the lower end of investment risk profiling.

''This shows where interest rates have been driven - and they could go lower,'' Mr Mcintyre said.

Fletcher has this week passed the $1 billion mark on repairs completed in Christchurch, where it is the lead contractor for the rebuilding, with a total 31,000 jobs in the pipeline.

Mr McIntyre noted that at a time when Fletcher shares were under duress in 2009, institutions and small shareholders took up a total $605 million placement. Fletcher shares have traded up almost 60% since July and have been trading around $9.20, slightly off last week's high of almost $9.30.

Fletcher has exercised an option to pay cash for the capital notes, as opposed to repaying them in ordinary shares. Note holders have until February 26 to decide on taking up the new term, or have some, or all notes paid out in cash.

simon.hartley@odt.co.nz

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