Brait took its heaviest pounding in the stock market in more than 19 months on Tuesday after the investment house unveiled plans to tap shareholders for R3bn via so-called exchangeable bonds.
Under the fundraising effort, Brait, which is in the middle of a sweeping operational and strategic overhaul that will return it to its private equity roots, said its main operating unit is to issue 3-million exchangeable bonds — or a debt/equity hybrid that does well when markets go up and preserves some of its value when markets fall — for R1,000 each.
The transaction has secured irrevocable undertakings and underwriting commitments of R2.7bn from shareholders that include Christo Wiese’s Titan and Ethos Capital. Proceeds will be used to replenish its cash buffers after burning through roughly R4bn to make up for losses suffered by the pandemic-hit gym chain Virgin Active.
The company is sitting on about R500m in cash, or assets that can easily be converted into cash, it said in a statement accompanying its half-year results. This has prompted it to consider funding options to help it carry out its already advanced plan to boost shareholder returns via the blanket sale of its assets, including the highly coveted Virgin Active.
However, shares in Brait crashed 9.5% to R4.10, booking the biggest one-day percentage fall since mid-April 2020, bringing losses since the April 2016 peak of around R122.31 to more than 96%.
Once a darling of investors after ditching its private equity business model in 2011 when it issued more publicly owned shares to become an investment holding company with big exposure in the UK, Brait started feeling the pain of weak consumer demand and fierce competition in 2016 shortly after Britain voted to leave the EU. That weighed heavily on what was once the company’s biggest profit source, UK fashion chain New Look, forcing it to completely write it off from its books. This spurred a selling frenzy in its stock.
In terms of the capital raise, each qualifying shareholder will be issued one right for every 440 shares held. The exchangeable bonds, through their issuance by the operating subsidiary, will be structurally senior to the existing convertible bonds due in 2024 and issued by Brait on December 4 2019. They will carry a 5% coupon.
With Tiisetso Motsoeneng
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