Pick n Pay is to proceed with its R4bn rights offer, after the necessary resolutions were approved by shareholders at the extraordinary general meeting on June 26.
The rights offer is part of the group’s recapitalisation plan to get the business back to profitability.
The net proceeds of the rights offer, combined with that of the proposed Boxer IPO, will be primarily used to settle the group’s outstanding debt and for reinvestment to secure the turnaround of the Pick n Pay supermarket business, the company said in a statement.
The group believes the rights offer, in conjunction with working capital improvements and the Boxer IPO, will assist it in raising sufficient liquidity to reduce long-term debt levels, which will improve liquidity and save on interest costs.
It will also facilitate the delivery of the turnaround strategy of the Pick n Pay supermarket business and unlock shareholder value embedded in the group. It will also deliver the incremental operational funding needed for the remainder of the 2025 financial year, the group said.
Pick n Pay is targeting gross proceeds of R4bn through the rights offer, which will constitute an offer of renounceable rights to subscribe for new ordinary shares. The final terms, including the price and ratio of entitlement, will be announced on or about July 11, it said.
It has concluded a standby underwriting agreement with Absa, Rand Merchant Bank and Standard Bank in terms of which they have agreed to underwrite the rights offer amount in equal proportions.
A deterioration in the performance of the core Pick n Pay supermarket business resulted in a substantial trading loss in the Pick n Pay division of R1.5bn in the year ended February, and an overall loss at group level of R3.2bn, including asset impairments.
The decline in Pick n Pay’s earnings and an escalation in the group's net debt position resulted in net debt/ (net cash) increasing from 1.1 to 6.3 times Ebitda.
The 2024 financial year losses also resulted in the need for a non-cash asset impairment amounting to R2.8bn. The increased gearing, together with this impairment, put significant pressure on the group’s liquidity and solvency.
The board undertook several key steps to safeguard the group’s liquidity position and to strengthen the underlying performance of the Pick n Pay supermarket business, including the appointment of new CEO Sean Summers to lead the Pick n Pay turnaround strategy and the restructuring of senior leadership and operational structures.
The steps included a full covenant waiver for the 12 months ended February 2024 and a debt restructuring agreement with its short- and long-term funders in May to secure the availability of its debt facilities until September 2025.
Summers previously indicated on his return that restoring the Pick n Pay business to meaningful profitability would be a multiyear process.
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