Here Is What You Need To Know About Presco’s Proposed Rights Issue

Presco shareholders approved a Rights Issue for the company. The company now plans to N3.5billion in Rights Issue which it hope will help pay off its foreign denominated loans. loans. So, I culled this article from The Nation which gives a breakdown of the transaction.

• Presco will use the net proceeds of its equity issue to offset foreign loans and growing overdraft as the palm oil-plantation and processing company seeks to rebuild its growth momentum after a major slump in 2013.
• Latest audit of Presco showed that it has outstanding foreign loan of N2.02 billion obtained from its majority shareholder, Siat sa.
• Besides, the company also obtained N1.07 billion loan from Stanbic IBTC Holdings under the Central Bank of Nigeria (CBN)’s Power and Airline Intervention Fund (PAIF).
• It also has about N221.9 million outstanding as import finance facility from Zenith Bank and another N845.55 million from United Bank for Africa (UBA) under the CBN’s Commercial Agriculture Credit Scheme (CACS).
• Bank overdraft has jumped by 1,015 per cent from N63.06 million in previous audit to N702.9 million in the latest audit.
• Presco’s interest expense on overdrafts also leapt by 608 per cent from N28.4 million to N201.4 million. Interest expense on overdraft represented about 52 per cent of the total interest expense of N390.4 million in the latest audit.
• The audited report and accounts for the year ended December 31, 2013 showed that net profit dropped by 62 per cent, which partly accounted for 90 per cent slash in cash dividend to shareholders.
• The outline on the new equity issue indicated that the company might raise about N3.5 billion from existing shareholders through a rights issue.
• At the annual general meeting yesterday, shareholders approved the increase in the authorised share capital of the company from N500 million to N550 million through the creation of 100 million ordinary shares of 50 kobo each.
• The rights issue will be pre-allotted to shareholders on the register of the company as at July 4, 2014 on the basis of one new share for every 10 shares held as at the qualification date. Directors of the company had earlier indicated the rights would be offered at N35 per share.
• However, in the event of under-subscription of the rights issue, shareholders will not have any pre-emptive right, paving the way for other investors to acquire the unsubscribed shares. The underwriter to the rights issue will be able to acquire the unsubscribed shares, subject to the approval of the regulatory authorities.
• The additional capital, according to the resolutions, would be used to eliminate the loans with foreign exchange exposure risk, accrued interest on these loans and overdraft.
• Sa Siat nv, which holds 60 per cent majority equity stake in Presco, will provide nearly two-thirds of the rights funds. First Inland Bank/Fidelity Finance Company (TRDG), which holds 8.0 per cent equity stake, is expected to provide the second largest chunk of the funds. Presco has some 9,415 shareholders with the largest group of shareholders holding small units within the range of 1000 to 10,000 shares.
• The company has struggled with declines in sales and profit in 2013. The steep decline led to 90 per cent reduction in cash dividend. While the company had distributed N1 billion annually as cash dividends for the 2011 and 2012, the company is distributing N100 million payout for the 2013 business year.
• While shareholders had received a dividend per share of N1 in 2011 and 2012, they will now receive a dividend per share of 10 kobo.
• The decline in dividend payout partly reflected the downturn in the operations of the company. Key extracts of the audited report and accounts for the year ended December 31, 2013 showed that net profit dropped by 62 per cent from N3.49 billion to N1.34 billion. Profit before tax had dwindled from N3.88 billion to N2.33 billion. Operating profit declined from N4.19 billion to N2.72 billion. Gross profit slumped to N4.62 billion in 2013 as against N5.24 billion in 2012. Aggregate turnover dropped to N8.49 billion in 2013 compared with N11.25 billion recorded in 2012.
• He said the management had an inkling that the 2013 performance might not be as good as the previous year given the changing operating conditions.

Other things to note

Presco has about N5.4billion in outstanding debts as such repaying this loans still leaves then with about N2billion in loans. Presco however, as over N17billion in Equity.

Siat has about 60% stake in Presco thus they will be expected to provide about N2.1billion as part of their contribution for the rights issue. Incidentally, N2.1billion of the foreign loan was obtained as an intercompany loan from Siat making this deal look like a debt equity swap. As such, I wonder why it wasn’t called as such and why they had to go through the expensive route of a Rights Issue. I do know they plan to repay other loans but that’s just N1.4billion left.