Brimstone to issue new shares in place of dividend
Listed investment group opts to preserve cash in preparation for investments in the near future
In a move to preserve cash, listed investment holding company Brimstone, the biggest shareholder of Sea Harvest, intends to issue new shares to shareholders instead of paying a dividend.
According to CEO Mustaq Brey, the company has earmarked its cash for future acquisitions and to reduce debt. As at December 31, Brimstone had long-term borrowings of R3.9bn and short-term loans of R1.4bn.
The company, which has other investments including a 24% interest in fishing company Oceana Group, said on Wednesday it would issue new shares to existing ordinary and N-ordinary shareholders.
Unlike ordinary shares, N-ordinary shares give shareholders minimal or no voting rights and they often trade at a discount to ordinary shares.
Brey said the company had taken the decision in light of uncertainties in its environment. These include a difficult macroeconomic environment in SA and the effect of the spreading coronavirus on the global economy.
“There are going to be big opportunities for us and we would rather have cash. We have to keep our powder dry,” he said.
The shareholders would receive new shares in proportion to the number of shares held. The company, which has not declared a dividend for the year ended December 31, would issue seven shares for every 100 shares held.
As at March 10, about 39.8-million ordinary shares and 207.6-million N-ordinary shares are eligible to be part of the transaction.
“The rationale for the capitalisation issue is to conserve Brimstone’s current cash resources during the present operating environment. Such cash resources will be deployed towards reducing debt and to take advantage of value enhancing investment opportunities,” the company said.
At the end of December, Brimstone's cash and cash equivalents stood at R319.17m, down from just over R1bn in 2018.
The company has not determined the price for the shares, saying the cash payment would be based on the volume weighted average price of an N-ordinary share on May 6, 2020. According to the company’s timeline, the shareholders would receive the shares on May 8.
“In light of the current volatility and uncertainty in global markets, together with a challenging operating environment, Brimstone is focused on conserving its cash resources and aims to reduce debt,” said Brimstone chair Fred Robertson.
In the year ended December 31, Brimstone’s revenue increased from R71.3m to R75.3m. It attributed the increase to a 47% increase in Sea Harvest’s profit.
During the year, Brimstone acquired a further 21.4-million Sea Harvest shares for R300m, increasing its stake to 54.2%. The fair value of Brimstone’s investment in Sea Harvest at year end was R2.3bn.
The company said in February it had acquired a further 55% stake in Obsidian Health for R35.7m. That transaction lifted Brimstone’s total shareholding in Obsidian, which provides capital equipment and medical devices to both private and public hospitals within Sub-Saharan Africa.
During the year, Brimstone, which has a strategy to increase interest in unlisted entities, also acquired an additional 9.5-million shares in Oceana for R686.3m, increasing its interest in the SA’s largest fishing company from 17% to 24%.
“We have been invested in Oceana since 1995. Over the years, our stake has risen from the initial 2.7% stake to be the largest shareholder,” Brey said.
Brimstone received dividends of R186.1m from Oceana, compared to R25.8m in 2018.