Wholesaler Spar, which needs cash to invest in Poland, says the Irish banks it approached about raising debt have not expressed interest in significantly increasing its debt covenants.
Spar, which operates in Switzerland, SA, Ireland, and Poland, needs to raise more capital and to fund the rollout of new software and its expansion in the East European country. It warned the market last year it may withhold or reduce dividends to do it.
The group’s R8bn debt is about double its earnings before interest, tax, depreciation and amortisation (ebitda), a ratio used by banks to determine if firms can repay debt. Spar is well within the target ratio of 2.75 that banks require, but it wants to increase this ratio.
At its AGM on Tuesday Spar was asked if banks are willing to increase its debt covenants.
Spar chair Graham O’Connor said it had approached the Irish banks, but they are “not really showing the appetite to increase those significantly. But we are still in ongoing discussions.”
All Weather Capital analyst Chris Reddy explained why Spar met Irish banks first. “I think Irish banks have got the strictest covenant requirements, hence Spar needed their approvals,” said Reddy.
O’Connor did not answer a question posed at the AGM on whether Spar will withhold dividends to raise money for expansion, but said the board is still “deliberating” about what to do.
Last year at its half-year results, Spar paid an interim dividend of R2.80 per share, up from R2.20 in 2020. A final dividend of R5.36 was paid in December, down from R6.65 the previous year.
In 2019, Spar bought a Polish wholesale and distribution business out of business rescue, taking on about R1.3bn debt. It also acquired the licence of Spar wholesaler in the country and sells to retailers but is looking to expand its reach to more stores and open stores at petrol stations.
Great success
It has opened four shops at petrol station stores in Poland.
While Spar is struggling to break even in one of Eastern Europe’s fastest-growing economies, it has had great success in Switzerland and Ireland. Just more than 36% of revenue comes from overseas, but most of its debt is linked to its overseas operations. Its debt is largely guaranteed in SA.
Spar faced a barrage of questions at the AGM, with activists mostly concerned about director remuneration and growing inequality in SA.
Spar on Tuesday committed to publishing the ratio between its lowest-paid workers and the highest, usually the CEO.
“Next year, we will certainly discuss our lowest-paid and now highest-paid [employees] so you can see the differential,” O’Connor told the AGM.
Woolworths has disclosed what its lowest-paid workers earn per hour.
The Companies Amendment Bill has suggested making disclosure of the pay gap ratio mandatory for listed firms, as is done in the US.
It is hoped that greater pay transparency, if passed into law, will nudge shareholders to be more proactive in tackling the ever-widening income gap.
Greer Blizzard, strategy and operations manager at activist NGO Just Share, who attended the AGM, said of the commitment, “It is encouraging to see movement in this area, especially before there is a legislative requirement for it.”
Achieve little
But she added, “in order for this kind of disclosure to make a difference, it needs to be made by all companies, to allow for comparison and proper analysis”.
The pay of top executives in SA has been controversial, and frequently the advisory votes on remuneration cast at AGMs do not pass, but these achieve little and only require companies to engage behind closed doors with unhappy shareholders.
On Tuesday, one of the two remuneration votes on Spar executive director pay did not meet the required 75% majority.
Spar now joins peers Shoprite, Truworths, TFG, and Clicks who had at least one vote that didn’t pass in their most recent AGMs.
Spar CEO Brett Botten earns considerably less than peers, at just more than R7m in 2021, far less than the Shoprite CEO who earned about R29m.
Chris Logan, activist shareholder, asked at the AGM why the Spar executive directors hold so few shares in the company. Many investors believe that the more shares top management hold, the more likely they are to act in the interest of shareholders.
O’Connor said the shareholding is being discussed by the board.
Logan was not happy with the answer. “It didn’t inspire confidence. There is a lack of shareholder and management alignment and there is hesitancy in remedying that.”
He said that Shoprite has “huge shareholder ownership by executive management, and they have become a dominant force in the market”.
Shoprite CEO Pieter Engelbrecht owns 888,694 of his company’s shares. Botten has 10,556 shares.
The Spar share price was 3.74% higher at R176.80 at close of trade on Tuesday.
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