Picture: 123RF/NARONGCHAI PIMVILAI
Picture: 123RF/NARONGCHAI PIMVILAI

Chemicals and fertiliser maker Omnia broke investors’ trust and misled the market for mulling a rights issue just over a month after it ruled out the need to issue fresh equity to cut debt, an analyst said on Friday.

Omnia’s shares slid to a 10-year low in early trade on Friday after the group said it needed to issue fresh equity to cut debt.

After losing 12.2% on Thursday, shares in Omnia slipped another 5.4% to R44.07 on Friday morning, the worst level since February 2009. The shares recovered to close 5.04% down at R44.25.

Amid talks with lenders, Omnia said in April that “there is no requirement for any unscheduled repayment or recapitalisation”. But on Thursday it said it planned to raise R2bn in new equity.

“The process with the principal debt providers is still ongoing and is progressing well,” it said. “As part of this process, Omnia has determined that it is prudent to reduce its overall gearing.” This would require a rights offer to shareholders of R2bn. Further details would be provided when the company’s financial results are published in late June.

Independent analyst Anthony Clark, of Small Talk Daily, on Friday referred to Omnia’s share price rally of more than 16% on April 23, the day it said there would be no need for recapitalisation to reduce its debt “as the market was relieved that a major equity raise was not being considered”.

“Now … Omnia, its bankers and brokers change their minds and the share price falls sharply as they announced the R2bn equity raise with no price and no timeline. This will just lead to the uncertainty regarding a rights issue value,” Clark said.

He said Omnia’s share price was likely to weaken further “as investors and the market have been misled by the April 23 Sens statement and I would call for an immediate JSE investigation into the company and its bankers’ actions. They have broken trust and basically misled the market”.

Omnia’s share price is down 47.63% since the beginning of 2019, as it buckles under a pile of debt after raising funds for two acquisitions — oil products and lubricants supplier Umongo and agriculture company Oro Agri — and the construction of a new fertiliser plant.

At the end of September 2018 Omnia’s debt was R4.6bn, compared to R2.5bn at the end of March 2018. The company has a market capitalisation of about R3bn.

Clark said the company now had no choice but to issue new equity. “They have few assets that could be quickly sold to raise money to repay the debt mountain they have and I would assume the bankers have pressured Omnia management to undertake the rights issue,” he said.

In this difficult economy it would take months to sell off assets and if the company’s financial debt position was now so precarious they are forced into this rights issue to get debt to comfortable levels then they are “potentially in serious trouble”, he added.

In April the company said it was in discussions with lenders to devise and implement a restructuring of its debt in order to ensure the firm’s long-term sustainability. At the time it was optimistic that it would reach “an amicable solution” with its funders. It said the debt package would be presented to investors at the release of the firm’s results in June.

Omnia said on Sunday it would not make additional comments on the matter as it was in a closed period. The company is scheduled to release full-year results on June 25.

njobenis@businesslive.co.za

hedleyn@businesslive.co.za