Shares in ASX-listed engineering firm Forge Group plunged a staggering 83.6 per cent in a single day after the company emerged from a four week trading halt, compelling it to enter a deal with ANZ which could leave the bank its biggest shareholder.
The company's shares plunged $3.49 by the close of the Thursday trading session to 68.5 cents, for a whopping 83.6 per cent decline on the back of severe write-downs on two of Forge's key power station contracts.
This single day share decline took roughly $300 million off Forge's market capitalization, leaving the company worth around $59 million.
Shares in Forge were worth $4.18 prior to the trading suspension which began on November 4 - already significantly down from the high of $6 tapped in September.
Forge has announced that it now expects to suffer a full year loss of between $85 million to $90 million on earnings before interest tax, depreciation and amortisation (EBITDA) in the 2014 fiscal year.
The chief cause of Forge's ongoing fiscal woes are difficulties in relation to the Diamantina power station in Queensland's Mt. Isa and the Rio Tinto West Angelas power station in the Pilbara in Western Australia, which have led to write-downs of $127 million. The two projects will require a further $45 million in spending to bring them to completion, which will likely mean further loss of money in both November and December.
According to Forge chief executive David Simpson the two power stations have suffered from multiple problems, including "large cost overruns in structural, mechanical and electrical works, poor project management, and delays in settling a number of claims."
Contractual problems in relation to the plants have vindicated Forge's traditional aversion to the outsourcing of project work. While Forge typically performs all work-in house, which enables it to exercise greater control of scheduling and budgets, the company made extensive use of subcontractors for Diamantina and West Angelas because it inherited these contracts via the acquisition of CTEC in January 2012.
The engineering firm's dire circumstances have compelled it to strike an agreement with ANZ which could eventually see the bank become Forge's biggest shareholder.
Under the deal ANZ will immediately provide a $60 million working capital facility - a near five-fold increase compared to the original $11 million, as well as the deferral of quarterly principal payments on an existing facility for the upcoming three quarters. ANZ will also receive warrants equivalent to 13 per cent of Forge's capital.