ICI launches £808m 'crisis' issue

DEBT-LADEN ICI has launched its much-leaked, deeply-discounted £808m rights issue amid criticism from analysts as the share price again came under pressure. It fell 9 3/4p at one stage before rebounding to become the highest FTSE 100 riser, up 17p to 341p.

The seven-for-11 rights issue at 180p a share is 44% lower than Friday's closing price. It follows a setback of almost £1bn to the share price in the past few weeks. The shares peaked at 1244p in 1998 and were worth 500p a year ago. The group is now capitalised at a lowly £2.48bn.

Although the issue will be fully underwritten by UBS Warburg, Goldman Sachs and Merrill Lynch, analysts believe institutional reaction will be mixed. The institutions hold 90% of the equity with the remainder in the hands of 275,000 long-suffering private shareholders.

A spokesman for ICI said that the group's main aim is 'to attain and maintain its positive credit rating'. Currently, its bonds are on an investment-level rating and it fears being demoted to junk status. The spokesman added that credit rating agency Moody's has said it supports ICI's plans to maintain its credit status with the rights issue.

One analyst said: 'This is a crisis cash-raising which will further depress the share price. I forecast that the underwriters will be picking up a good chunk of the issue themselves.'

Another said: 'This is the lesser of two evils. At least it rescues its debt from junk status, which would have cost it another £100m in extra interest repayments.'

Zac Phillips of Credit Lyonnais said it was easy to criticise ICI for the highly dilutive issue but the management had probably done the right thing, given its debt woe. Williams de Broe's Navid Malik said: 'Operationally, ICI has performed better than its peers and we view this rights issue as a pragmatic step by the company to get its debt problem under control quickly.'

At the same time as details of the rights issue were announced, ICI chief executive Brendan O'Neill said that pre-exceptional pre-tax profits for the year to last December would come in at £401m against £450m the previous year.

Fourth-quarter turnover was 1% lower at £1.34bn but the performance of the paints and Quest specialty chemicals units were ahead of expectations. There will be a second interim dividend of 9.75p. Last month's sales were described as satisfactory.