Chemicals and fertiliser maker Omnia Holdings said on Tuesday it had been acting in good faith when it told investors in April that it had no plans to issue fresh equity.
The company was responding to the outrage that met its shock announcement on May 30 that the company intended to undertake a R2bn rights offer to reduce debt.
The rights offer followed debt restructuring talks between Omnia and its funders. In an April 23 statement, the company said “at that stage” there was no need for a rights offer, only for the company to announce the R2bn rights offer weeks later.
Omnia shares were up 11.79% on Tuesday to R38.39, the biggest one-day increase in the share price since April 23, the day the company said there was no need for a rights issue. The move appears to have been sparked by the company releasing details on how it plans to reduce its debt.
Omnia financial director Seelan Gobalsamy said the April statement was in response to “incorrect” information in the market that the company would convert its debt to equity, had accelerated payment terms with funders and “that at that point in time” the company had decided to undertake a rights issue.
“We put out a SENS statement that said we had not made any of those decisions,” he said.
“We had to respond. The lenders had not asked us to accelerate payments or to convert debt to equity. And we had not decided on a right issue. It would have been misleading for us to say we had already decided on a rights issue,” he said.
He said that on May 30, the company’s board considered a number of options to plug a R2bn “gap” in the company’s balance sheet. “One of those options was a rights offer or to sell an asset,” he said. The company opted for a rights offer because selling an asset would have been risky for the business, Gobalsamy said.
“As soon as the board decided that we needed to do a rights issue we felt we needed to tell the market about that,” he said.
He said the company’s current priority was to reduce the company’s debt, which has ballooned from R2.5bn in March 2018 to R4.4bn in the year ended March 2019. “What the management is focusing on now is stabilising and fixing the balance sheet,” he said.
Gobalsamy said between 2013 and 2017, Omnia had little debt.
“In 2016/2017, investors [asked] us: ‘Can you do more with your lazy balance sheet? Can you think about gearing it up a bit?’ The company made a few decisions,” said Gobalsamy.
Omnia’s recent investments include the acquisitions of Umongo Petroleum, a distributor of additives, base oils and other related petroleum, oil and lubricant products in SA and Sub-Saharan Africa, and Oro Agri, a developer and manufacturer of patented products for agricultural, home and industrial applications worldwide.
“These acquisitions needed to be paid for and clearly a number of headwinds faced the business. We have seen a slowdown in the economies we operate in. We have seen agriculture and mining sectors slow down locally,” he said.
The “perfect storm” led to the spiralling debt as the company started to pay for the acquisitions and its capital expenditure.
Omnia MD Adriaan de Lange, however, said the company did not regret the investment decisions. “We will realise the envisaged long-term returns out of these investments,” he said.
The slowdown in the economy hit the firm at a time when Omnia had used retained earnings for growth. “That left us exposed. This led to a fast accumulation of debt,” he said.
Omnia said on Tuesday proceeds from the planned R2bn rights issue would be used to partly repay a R6.8bn bridge facility the company had secured from its lenders to reduce debt.