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ICI sets rights issue

ICI“S board, led by chairman Lord Trotman, put the finishing touches to a deeply-discounted GBP 800 million rights issue at the weekend to rid the ailing chemicals group of a portion of its GBP 2.9 b…

ICI“S board, led by chairman Lord Trotman, put the finishing touches to a deeply-discounted GBP 800 million rights issue at the weekend to rid the ailing chemicals group of a portion of its GBP 2.9 billion debt mountain and revive its fortunes. It is understood that the preferred option is a two-for-three structured issue, to be priced at between 180p and 190p. At the lower end of that range the rights shares would have a 45% discount to the closing price on 1 March of 324p a share. Trotman and his chief executive, Brendan O“Neill, are hoping that the steep discount will oblige investors, who have seen the shares slump from a high of more than GBP 12 a share in 1998, to take up the offer. ICI refused to comment ahead of the announcement. Key will be the support from American institutional investors, which account for some 30% of the chemical group“s shareholding base. Brandes Investments, the California-based investment group, owns around 10%, followed by Franklin Templeton Investments with about 5% of the equity. The issue, which is being fully underwritten by UBS Warburg, the Anglo-Swiss investment bank, will be the fourth-largest in the UK since 1998. In a statement at the end of February, the company said the issue is necessary after credit agencies had threatened to downgrade its paper to junk-bond status unless its debt mountain was reduced. The interest rate on the group“s short-term debt of around GBP 1 billion, would rise by four percentage points if it lost its BBB/Baa2 credit rating, the company said. This would reduce earnings by 10%. Both credit agencies, Standard & Poor“s and Moody“s Investors Service, responded quickly to news of the planned rights issue, re-affirming their existing credit ratings, which are two notches above junk grade. Moody“s also changed its outlook on the ratings from negative to stable on the back of the announcement. Investors were last week said to be lukewarm about the issue but company observers said they would probably have little choice but to take it up. “What choice do equity shareholders have,” said one. “The company is between a rock and a hard place.” Separately, City sources said that another concern for the beleaguered chemicals group this week will be a vital court decision on lead paint litigation in Rhode Island which, depending on the outcome, could impact the group“s shares. American investors in particular are understood to have become concerned about the costs of possible litigation on similar issues. In February, fellow chemicals group, Dow Chemical, was forced to agree a settlement in an asbestos lawsuit filed in January against Union Carbide, which it had acquired in 2001. News of the settlement caused shares in Dow to drop more than 20%, wiping billions off its market capitalization.

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