Nampak’s share price plunged 30.7% to R1.36 after it forecast lower earnings and announced a R2 billion rights issue to refinance debt because “self-help” measures to raise the finance were not sufficient.
Shareholders typically don’t like rights issues because the increased number of shares dilute a company’s earnings and dividends.
The rights issue also drew sharp commentary on social media, with tradinglikeafox (@tradinglikeafox), for instance, saying on Twitter: “Nampak down 35% today on a disastrous trading statement and a massive rights issue SA inc is struggling.”
The Finance Ghost (@FinanceGhost) said: “Of the R2bn that Nampak wants to raise, R150 million is needed for transaction costs of the refinancing and rights offer. You know those fancy buildings in Sandton full of bankers and lawyers? Now you understand how they exist.”
South Africa’s biggest packaging group said in a trading statement yesterday it expected headline earnings per share (Heps) to decrease to between between 33c and 37c for the year ended September 30, compared to Heps of 62.3c in the 2021 financial year, representing a sharp decrease of between 41% and 47%.
A loss per share of between 22c and 25c was expected, compared to earnings per share of 32.1c in the previous year. The annual results are expected to be released on Monday.
Regarding the capital raise, the group said it was required to refinance its debt package before March 31, 2023 because its current debt and the US Private Placement funding matures on December 31, 2023 and on May 28, 2023 respectively, and it has to repay R1.35bn of net debt by March 31, 2023.
“As a result of the current economic environment self-help measures have not fully yielded the required results. Nampak will, therefore, convene an extraordinary general meeting in respect of which a circular will be published on or about 15 December, 2022, seeking all relevant authorisations required to enable the company to proceed with a potential rights offer of up to R2bn during the course of the first quarter of 2023.”
The group said that if successful, the rights issue would enable management to focus on delivering on Nampak’s growth strategy, and result in a simplified, more robust capital structure.
It plans to use R1.35bn of the rights issue to repay lenders, as a minimum requirement for the refinancing; R350m to upgrade a beverage can line in South Africa, which would add “urgently needed production capacity to satisfy the unprecedented growth in beverage can demand”; R150m to provide operating flexibility; and R150m to cover estimated transaction costs of the refinancing and proposed rights offer.
The group said a number of historic events had resulted in an “elevated level of gearing”, such as the goodwill in Nigeria, asset impairments in Angola, impairments from a higher weighted average cost of capital-to-asset valuations, hyperinflation in Zimbabwe, and an expected credit loss raised in 2019 against debt from the Reserve Bank of Zimbabwe.
“The historical decisions to fund the African expansion mainly with US dollar debt has meant that the impact of the aforementioned macro-economic and operational pressures placed significant strain on the balance sheet and required the group to seek covenant relaxations from its funding partners. This has resulted in an increase in funding costs, which has been more acute in the context of the rising commodity prices and interest rate environment that has emerged since the onset of the war in Ukraine.”
The group operates in 10 countries across Africa.
BUSINESS REPORT