- Wants to restructure balance sheet and reduce debt
- Seeks to repay Ram and Farouk loan
Choppies Enterprises Limited has this week announced plans to raise up to P300 million to effect balance sheet restructuring, eliminate technical insolvency and reduce interest bearing debt in the interests of profits.
Choppies will raise the P300 million from its shareholders by way a rights offer. A rights offer is an opportunity for existing shareholders to purchase additional shares of a company, often at a discount. According to a Choppies circular, its rights offer price represents a discount of approximately 10 percent to the 30-day volume weighted average traded price of Choppies ordinary shares as at close of business on the date immediately preceding 31 May 2023, which is the declaration date.
Rationale
Group CEO Ramachandran Ottapathu says the rationale for the company undertaking the rights offer is to effect a restructuring of the balance sheet of Choppies, eliminate the technical insolvency and reduce interest bearing debt in the interests of profits. Choppies also wants to remove the effect of debt on solvency ratios and going concern issues.
“The company intends to utilise the proceeds of the rights offer, being P300 000 000, to reduce bank debt, to extinguish debt owing by the company to certain shareholders and to settle the costs relating to the rights offer,” says Ottapathu in the circular.
In order to achieve these objectives and to assist the company with successful completion of the rights offer, the CEO says certain key shareholders, including himself and Farouk Ismail, have agreed to follow their rights in terms of the rights offer up to an amount of approximately P149 810 005.
Ivygrove
Choppies received a commitment from these major shareholders to follow its rights in terms of the rights offer and subscribe for 260 086 814 rights offer shares.
Choppies says it has an underwriting agreement with Ivygrove Holdings. The group says it has received a commitment from Ivygrove to partially underwrite a maximum of 208 333 333 rights offer shares that are not taken up by other shareholders in terms of the rights offer. According to the circular, the commitment to subscribe for the committed rights offer shares equates to approximately P120 000 000. If no investors buy the shares, Ivygrove will buy them as the underwriters.
Sufficient resources
In terms of the Ivygrove Underwriting Agreement, Ivygrove will receive a fee of 1 percent of the subscription fee which would be payable for all for the underwritten rights offer shares under this agreement, being 1 percent of P120 000 000 (underwriting fees), regardless of the number of underwritten rights offer shares actually subscribed for by Ivygrove.
In the opinion of the independent non-executive directors of the board, the underwriting fees due to Ivygrove are not greater than the current market rate charged by independent underwriters. According to the circular, after due and careful enquiry, the Board is of the opinion that Ivygrove has sufficient resources to meet its financial commitments in terms of the Ivygrove Underwriting Agreement.
Ivygrove Holdings, a private company duly incorporated in accordance with the laws of South Africa, was incorporated on the 30 January 2023, according to Choppies documents. Choppies also has an Underwriting Agreement with Export Marketing, a private company duly incorporated in 1999 in accordance with the laws of the British Virgin Islands. Choppies says it has received a commitment from Export Marketing to partially underwrite a maximum of 60 763 888 rights offer shares that are not taken up by other shareholders in terms of the rights offer. The commitment to subscribe for the committed rights offer shares equates to approximately P35 000 000.
Export Marketing will receive an administration fee for all reasonable administrative expenses incurred in relation to the underwriting (including legal fees), which fees shall not exceed 1 percent of the subscription price paid by Export Marketing for the aggregate underwritten rights offer shares taken up in terms of the Export Marketing Underwriting Agreement (administrative fees).
In the opinion of the independent non-executive directors of the board, Choppies says the administrative fees due to Export Marketing are not greater than the current market rate charged by independent underwriters. “The Board, after due and careful enquiry, are of the opinion that Export Marketing has sufficient resources to meet its financial commitments in terms of the Export Marketing Underwriting Agreement,” says the circular.
