February 12, 2018 / 4:19 AM / in 2 months

UPDATE 2-NZ's Fletcher in talks with lenders as covenant breaches loom

* Says in talks with lenders, extends trading halt to Wednesday

* Company had downgraded earnings for fourth time in under a year

* Spiralling costs and delayed projects causing problems (Re-casts, adds detail and analyst comment)

By Charlotte Greenfield

WELLINGTON, Feb 12 (Reuters) - Fletcher Building Ltd , the biggest company in New Zealand’s construction sector, said it needed more time to talk to its lenders and requested a two-day extension to a trading halt as it confronts a potential breach of debt covenants.

This highlights the pressure piling up on the builder that - reeling from cost overruns and deep losses at its projects - only last week flagged its fourth earnings downgrade in less than a year.

However, analysts say Fletcher’s importance to the country’s construction sector and broader economy would likely warrant a relatively favourable approach from its creditors, adding they did not think the company was at any risk of insolvency.

“They’re working with their lenders to manoeuvre through obviously what is quite challenging times for them,” said Kar Yue Yeo, managing director of Equity Research at First Capital NZ, adding Fletcher’s size and status would help its case.

“They’ve defaulted on their borrowing covenants but they’re not struggling to repay their debts,” he said.

New Zealand’s No.2 listed firm by revenue has NZ$725 million ($525 million) in borrowings due to be repaid between 2020 and 2022, Thomson Reuters Loan Connector data shows.

The company had been due to update the market on its talks with lenders on Monday, but said it was pushing that back until Wednesday, almost one week after the initial trading halt.

Fletcher’s shares closed at NZ$7.70 before the halt, having lost about a quarter of their value over 12 months on the string of earnings downgrades.

LOOKING FOR ANSWERS

The profit warnings come despite record migration driving the biggest building boom in living memory in New Zealand.

Cost blowouts at Fletcher have been blamed on a fast-moving labour market that can turn once-profitable contracts into liabilities as wage bills balloon.

“It has been surprising how many times these guys have re-assessed the losses on major construction projects,” said Matt Henry, senior analyst at Forsyth Barr.

“Investors will be looking for answers.”

Fletcher, which has two major projects under construction in Auckland and Christchurch, warned of cost overruns three times last year. Each time, the increases went beyond expectations, shaking investors’ confidence in company forecasts and management.

The Auckland project is a convention centre and hotel being built for casino operator Sky City Entertainment Group.

That project has been delayed by six months until mid-2019, but SkyCity CEO Graeme Stephens has said there is no indication Fletcher’s troubles will further delay completion.

The firm is due to report results for six months ended December on Feb. 21, the first under new CEO Ross Taylor, who took over in November after Mark Adamson stepped down in July.

It had reported a larger-than-expected drop in its profits for fiscal 2017. ($1 = 1.3787 New Zealand dollars) (Reporting by Ambar Warrick in Bengaluru and Charlotte Greenfield in Wellington; editing by Andrew Roche and Himani Sarkar)

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