ABC gets $82m booster shot ::

Author: Liam Walsh
Date: 11/06/2008
Publication: The Courier Mail

BATTLING childcare operator ABC Learning Centres has reaped $82 million from two investors by breaking a pledge for the second time on such fundraising.

The money is being used to decrease debt at Brisbane-based ABC, which suffered a market savaging earlier this year.

ABC meanwhile said moves to boost performance at over 1000 local centres were "on track'' for significant improvements next financial year.

But the sale of a British voucher business, rumoured to be down to one buyer, might now be delayed until after this financial year.

The lion's share of the $82 million is coming from shares issued to Morgan Stanley Private Equity, which bought a large chunk of ABC's US assets this year. A smaller amount is from existing investor Lazard Asset Management.

Key ABC investor, the Singapore government-backed Temasek, did not take part. Temasek declined to comment and ABC would not say if it was offered an opportunity to take part.

ABC is issuing shares at $1.15 each worth almost 15 per cent of its current market equity. The price is a 15 per cent discount to Friday's close of $1.35.

The shares yesterday fell only 9.3 per cent to $1.225. Some market watchers thought the fact it didn't fall further was due to confidence about Morgan Stanley's investment.

New ABC chairman David Ryan yesterday said the $82 million placement was "a strong endorsement . . . of our business and our prospects''.

ABC in recent years made big acquisitions in Australia and the US. Mr Ryan said this was initially funded via equity, for which ABC was criticised, and later debt.

The move comes after ABC in February said it had no plans to issue shares in the next 12 months.

"The circumstances of the company and the market changed dramatically at the half year, and we're about managing risk,'' Mr Ryan said yesterday.

In 2007, ABC also issued almost $400 million in shares to Temasek at $7.30 each after earlier saying growth would be funded via cash flow and debt rather than equity.

Clime Asset Management managing director Roger Montgomery said the latest placement would dilute investors' existing holdings and decrease return on equity (a measure of profitability).

"It becomes an even less profitable business than in the past,'' he said.

"This is the impact of companies that purchase growth at any cost.

"If I owned shares in this business I would be asking for heads to roll.''

Macquarie Equities adviser Helen Spencer said the market in the short term might "heavily discount'' the strategies ABC detailed yesterday.

A continued deterioration of credit markets could result in further asset sales or even more equity raisings, she said.

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