Pick n Pay will announce the terms of its R4 billion rights offer underwritten by Absa, Rand Merchant Bank, and Standard Bank tomorrow, as the troubled South African retailer bids to raise capital to turnaround its fledgling business.
It said yesterday that it had concluded a standby underwriting agreement with Absa, RMB and Standard Bank. The South African banks have agreed to jointly underwrite the Pick n Pay rights offer in equal proportions.
“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 Pick n Pay ordinary shares recorded in the register on the record date for the rights offer expected to be on or about Friday, July 19, 2024,” the company said yesterday.
The troubled retail group added that the “final terms of the rights offer, including the rights offer price and ratio of entitlement will be announced” tomorrow (July 11, 2024).
The company’s stock closed 0.33% weaker yesterday on the JSE, closing at R26.80 per share.
Pick n Pay is implementing the rights offer as part of a recapitalisation plan, which also encompasses separate listing of the budget retailer Boxer for the group.
Proceeds of the rights offer and the Boxer IPO will be used to settle Pick n Pay’s outstanding debt, in addition to possible reinvestment into its operations.
The reinvestment strategy will be expected to “secure the turnaround of Pick n Pay’s supermarket” business.
In the year to end February, 2024 Pick n Pay’s supermarket business tipped into a substantial trading loss of R1.5bn.
The group’s overall loss for the period amounted to R3.2bn, including asset impairments for the same period.
The decline in Pick n Pay’s earnings and an escalation in the group’s net debt position resulted in net debt increasing from 1.1 to 6.3 times Ebitda for the full year under review.
“The FY2024 losses incurred 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,” said Pick n Pay yesterday.
Pick n Pay embarked on the restructuring and recapitalisation plan to save its market position and claw out of huge debts, with chairman Gareth Ackerman set to relinquish control of the South African grocer.
Market analyst Simon Brown reckons that Pick n Pay “is in trouble and needs cash” as soon as possible. In March, the board of Pick n Pay authorised the grocer to take up loan facilities amounting to R1bn with banks such as FirstRand.
Ackerman said recently that the restructuring of the retailer was the “best approach to reinvest in our company, recapitalise the business, and reduce debt” obligations.
“This will enable Pick n Pay’s management to start investing back into the business for growth,” he said.
BUSINESS REPORT