14 May 2008 - 9:52pm | posted by | 0 comments

Johnston Press announce rights issue to cut debt

Edinburgh-based Johnston Press announced it aims to raise £200m through a rights issue.

The news, which came on top of speculation the company was in danger of breaching banking covenants, concerned the City, and its share price dropped throughout the day.  Chief Financial Officer Stuart Paterson told journalists that the group had considered several options including selling titles and were forced to act due to the weakness on the advertising front.

"We reached the view that the level of debt in the business was probably inappropriate."  he said. "But with the outlook as it is ... we decided to enter a fundraising period."

He also stressed the company was not in danger of breaching covenants.

One analyst told The Drum, “This news is concerning. Over the years Johnston Press has grown its business through a combination of acquisition and cost engineering. But in the current market people must wonder if that model is now sustainable. There is a finite amount of acquisition targets. And there is only so much you can cut costs. Coupled with falling advertising sales we now expect a profits downgrade.”

Edinburgh-based Johnston Press, which is one of the largest local and regional newspaper publishers in the UK, had net debt of £700m. Meanwhile, it was also announced that Malaysian investment firm Usaha Tega will take a 20 per cent stake in the group, through a share subscription and acquisition from the Johnston family's trusts.

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