As shareholders mull how to vote on the proposed R2bn capital raise, debt-laden Nampak has lost nearly half its share value since announcing plans for a rights offer at the beginning of December.
Africa’s biggest packaging group, which saw Standard Bank and PSG asset management last week increase their shareholding in the packaging group, has seen its share price plunge more than 48% on the news of its upcoming proposed rights offer.
After losing 10% on Monday the share price has shed nearly 75% since the beginning of the year.
The CEO of the packaging group, which has found itself R5bn in debt after an African expansion which kicked off in 2013, said the group should have acted sooner on approaching shareholders for capital.
“It was better to actually do a rights issue at that point in time when people had a lot of confidence about those investments, Nampak CEO Erik Smuts said. “And they were successful when we went into them.”
The share price was on an upward trajectory from 2009 to 2015 with African operations lifting earnings. Smuts pointed out that it was only around 2014/2015 that the Angolan and Nigerian economies turned negative.
“We could have done better. we should have stopped or reduced the dividend much quicker, he said.
Smuts said the group had been avoiding a rights offer but had no choice after a bid to sell off assets was unsuccessful.
Chronux research analyst Rowan Goeller echoed the sentiment of a capital raise being the last option after all others were exhausted, saying Nampak’s management teams were “holding out for a long time hoping they could avoid a potential rights offer”.
He said Nampak was in an interesting situation because the company was doing well operationally, but was haunted by external affairs over which they have no control, such as volatile African currencies in the markets where they operate.
“They did lose money in trying to get dollars in Nigeria,” Goeller said. “They’ve put quite a lot of money into working capital and it has not come back yet because of supply chain issues and commodity prices being high,” he said.
Despite the best efforts of management teams to right-size the 54-year-old business, Nampak has become the latest in a string of local companies, such as MTN, that have learnt hard lessons about funding African operations through dollar debt.
At the core of the capital raise exercise is the tight time deadlines the Johannesburg-based group has in which to pay back lenders. Nampak, which is being disproportionally funded by a complex consortium of lenders with gearing levels exceeding shareholder equity, is required to raise capital of no less than R1.35bn to refinance its debt package before March 31.
At an extraordinary general meeting, the details of which will become available on Thursday, shareholders will vote on whether to enable the company to proceed with a potential rights offer of up to R2bn during the first quarter of 2023.
Despite how it looked on paper, Goeller said the rights offer was worth supporting.
“It’s one of those rights offers where it’s probably well worth following your rights because you are putting the business in a better position when operationally it’s already doing quite well.”
According to the group, if successful, the capital will enable management to focus on delivering on Nampak’s growth strategy and result in a simplified, more robust capital structure.
The recent share slide aside, Standard Bank last week upped its stake to 7.69% while PSG raised its holding to 6.23%.
Investor Dave Hazelwood pointed out recently that the ratio between Nampak’s market cap and rights issue was getting worse by the day, highlighting that with Standard Bank being among Nampak’s creditors it was “interesting” that it had upped its stake in the business.
Smuts said the cash injection would be enough to not only reduce some of its debt burdens but also allow it some operating flexibility.
Underscoring the prospects for growth in the environmentally friendly aluminium can market, he said the core business is healthy and should look a lot better once it has the rights cash.
“There are a lot of lessons we can learn from the past,” he said.
Correction: December 13 2022
The official vote will not be happening on December 15, but rather the circular detailing the extraordinary general meeting and the 2023 date will be issued on December 15. The AGM vote is only scheduled for February next year.
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