The £420 million Phaunos Timber fund has announced an emergency equity issue to prevent it going bust.
The London-listed trust warned that ‘as a consequence of a number of changed circumstances’, which include a suspension of dividends from one of its holdings due to reduced timber prices in China, there was ‘material uncertainty over the immediate liquidity requirements of the company and its cash position’.
The board concluded that ‘without action, the company may be unable to pay its liabilities as they fall due within the next three to six months’.
Phaunos Timber has therefore proposed an equity injection through the placing of approximately 5% of its issued share capital ‘within the next few weeks’. Both the trust’s board and manager, Stafford Timberland, will participate in the placing.
The board stated that the fundraising would be a ‘one-off event’ and that Phaunos Timber would remain ‘a going concern following a successful equity raise’.
Should the placing not proceed, the board added that it was also ‘engaged in advanced discussions with potential debt providers’.
Phaunos Timber’s net asset value has fallen by 30% over the past three years, and its share price by 39%, and Stafford Timberland took over the trust’s management from FourWinds earlier this year.
‘We believe that the recent appointment of Stafford, an experienced timber asset manager, was a positive step for the company, but there remains considerable uncertainty over the valuations of its assets,’ said Numis analyst Ewan Lovett-Turner.
‘The equity raise may alleviate the company’s immediate cash shortage, but we believe that Phaunos remains a high-risk investment.’
Lovett-Turner added that while no further details of the placing have been released, ‘it is likely to result in significant dilution to shareholders who do not participate’.
Shares in the trust slipped by a further 15% in early trading this morning.