Sweden’s Saab plans to raise 6 billion Swedish crowns ($665 million) to bolster its financial muscle after big contract wins that have swelled its order backlog in recent years, the defense company said on Tuesday.
Shares in the company slumped in early trading after Saab said it needed a stronger balance sheet to develop the large projects in its order book and to invest in research and development while competing for new extensive contracts.
“Large orders also imply initially increased investments in production and working capital, and at the same time the rapid technology development entails continued investments in research and development,” Saab said.
“Saab therefore needs a strong financial position to create room for continued growth.”
The company has developed the T-X trainer aircraft – recently ordered by the U.S. Air Force – with Boeing, while large projects in its backlog include orders from Sweden and Brazil for its Gripen E fighter jet.
Saab’s shares were down 11.5 per cent at 377 crowns by 0809 GMT.
“There is a risk the proposed rights issue is perceived as shoring up the balance sheet,” Jefferies said in a note.
“We would like to regard the proposed rights issue as a positive signal, but it is a bit of a leap for us to make and suspect it is a leap the wider market may not manage; not immediately anyway.”
Saab said shareholders representing 58.9 per cent of votes, including major owners Investor AB and the Knut and Alice Wallenberg Foundation, supported the rights issue.
The Stockholm-based company reported a 22 per cent rise in order intake to 4.52 billion crowns in the third quarter, while adjusted operating income was 237 million crowns, down from 369 million in the same period last year.
Saab said it booked non-recurring costs of 298 million crowns in the quarter related to efficiency measures including digitization of internal processes.
The company stood by its 2018 outlook for organic sales growth of 5 per cent and a higher adjusted operating margin and said it expects continued strong demand for its products as well as increasing defense budgets in most markets.