‘Desperate times’ for Omnia as it offers shares at hefty discount
Struggling chemicals company to issue 100-million new shares at R20 each — a 41% discount to Thursday’s share price
Debt-laden chemicals and fertiliser maker Omnia opted to set the rights issue at a discounted price to attract enough uptake, analysts said on Monday.
Omnia’s shares slumped as much as 8.6% in early trade on Monday after the company announced plans to issue 100-million new shares at R20 per share as part of a rights issue meant to ease the firm’s debt woes. Omnia’s shares closed 1.47% weaker on the day at R33.57. The R20 a share offer is a hefty 41% discount to Thursday’s share price of R34.07.
The R2bn rights issue is at the centre of Omnia’s turnaround plan as the proceeds will be used to reduce debt, which at the end of March was R4.4bn.
Omnia’s debt soared after the acquisitions of lubricants supplier Umongo Petroleum and Oro Agri, a producer of agricultural biological products.
The rights offer is slightly more than the firm’s market capitalisation of R2.3bn.
“It’s desperate times for Omnia. It’s a very sad story, but they have no alternative but to raise ‘expensive’ equity capital. Obviously it would be cheaper to borrow money, but management naturally feel that the business is not strong enough [yet] to take on the burden of servicing more debt,” Sasfin Securities deputy chair David Shapiro said.
“The underwriters also have to mitigate the risk of laying out cash without any guarantees that the business will necessarily overcome its difficulties, considering the parlous state of our economy and general worries over global growth, hence the deep discount,” Shapiro said.
Anthony Clark of Small Talk Daily on Monday said the announcement of the price of the rights offer removed uncertainty because the market had been waiting for the details since the company announced the move in May.
“Twenty rand is probably the price that the banks believed would bring full support from shareholders to participate and support the rights. At R20 you are basically compelled as an existing shareholder to participate,” Clark said.
According to Omnia, the rights issue is part of a plan to reduce the ratio of debt to earnings before interest, taxes, depreciation and amortisation (ebitda) from 3.9 times to 2.4 times.
Net debt-to-ebitda measures the indebtedness of a company and shows the number of years it would take a company to pay back its debt if net debt and ebitda were held constant. In the 2018 financial year, the debt-to-ebitda ratio was 1.7 times.
Omnia financial director Thanaseelan Gobalsamy said in June the company’s long-term goal is to reduce the net debt-to-ebitda ratio to below 2.
Omnia said on Monday that it has secured agreement from its underwriters on the offer, with the only condition that it be published no later than September 30 2019.
The company said it had secured an underwriting agreement with asset managers for those with shareholdings in the company, including Allan Gray, Coronation Asset Management, Foord Asset Management, Kagiso Asset Management and Old Mutual Investment Group.
With Karl Gernetzky