Chemicals and fertiliser maker Omnia says it needs to sell R2bn worth of new shares “to ensure its long-term sustainability” after hefty losses in the year to end-March and a sharp increase in debt left it with a funding gap.

But Omnia’s shares surged 16.5% to R40 on Tuesday afternoon after management outlined plans to stabilise the business, which could include exits from certain jurisdictions where returns are found to be inadequate.

Earlier on Tuesday, Omnia’s shares were trading at their worst level in nearly 15 years amid management changes, warnings of impairments, and a surprise request for more shareholder funding.

Omnia said in April that “there is no requirement for any unscheduled repayment or recapitalisation”. Weeks later, it said it needed to raise R2bn in new equity.

The group said on Tuesday that it made a loss after tax of R407m in the year to end-March, from a profit of R664m the previous year, as higher costs, impairments, and a sharp increase in interest payments offset a rise in revenue. Group revenue rose 7% to R18.6bn, but was down 2% when stripping out the contribution of recent acquisitions.

As a result of the loss and higher debt levels — net debt rose to R4.4bn, from R2.5bn a year before — the group halted final dividend payments to shareholders.The group’s net debt position, the result of acquisitions, and the construction of a new plant, eclipses its current market capitalisation of R2.4bn.

“In the 2019 financial year, the group was adversely impacted by droughts, late rains, a volatile rand, a material slowdown in the local and international mining industry and overall difficult trading conditions,” Omnia said.

Higher working capital requirements, following the acquisition of Oro Agri, were funded with borrowings and overdraft facilities, said the company, which had a negative net cash position of R1.6bn at the end of March.

“The net loss after tax, together with the increase in the group’s debt levels, were not in line with the group’s principal debt providers’ expectations or covenant requirements,” Omnia said.

The group said it had secured a 12-month R6.8bn bridging facility from its main lenders, which had allowed it to settle all existing borrowings and overdraft facilities. But while this afforded the company short-term liquidity, it said its debt levels “remain too high”.

Proceeds from the planned R2bn rights issue would be used to partly repay the bridge facility and to allow the company to access undrawn facilities. 

Omnia, which said earlier in June that chair Rod Humphris had stepped down with immediate effect, also announced impairments on Tuesday, including a R324m goodwill write-down against its Protea Chemicals business.

The group’s shares reached a low of R33 early on Tuesday. In 2014, they reached highs of nearly R240.

Omnia said in a separate statement on Tuesday that its rights offer, which needs shareholder approval, had been underwritten by Absa Bank, Investec Bank, Rand Merchant Bank and Standard Bank of SA.

Omnia warned that if shareholders voted down the share-sale plan — the price of which still needs to be determined — this would “constitute an event of default under the bridge debt facility”. This would mean it would have to make another plan.

Group finance director Thanaseelan Gobalsamy said Omnia’s board was eyeing earnings before interest, tax, depreciation and amortisation of more than R1.5bn in the 2020 financial year. Gobalsamy said the board had considered a range of options, including divestments, before deciding on the need for a rights offer.

The group will review its operations over the next 12 to 24 months to identify which business units, geographies and product lines are not delivering adequate returns, he said, adding that the company’s capital expenditure requirements will also be far less onerous going forward.

Correction: June 25 2019
An earlier version of this article stated that Omnia had breached its loan covenants. This was incorrect, according to the company. Business Day regrets the error.

Update: June 25 2019 
This story has been updated to reflect updated figures and comments throughout.