Shares in Nampak plunged by nearly a third on Thursday after it warned it would have to undertake a rights issue of up to R2-billion to pay down debt and increase capacity on its beverage can line.

Nampak, which is SA’s biggest manufacturer of cans, said it planned to hold an extraordinary meeting to get the necessary approvals to go ahead with a rights issue sometime in the first quarter of next year.

The news that Nampak was aiming to raise an amount that was close to R700-million more than its market capitalisation of R1.35-billion rattled the market, with the company’s shares falling 32.31% to R1.32 by 09:45. The share price fall brought Nampak’s market capitalisation down to just under R900-million, which meant the company was now effectively looking to raise more than double its value on the JSE.

Click here for more details on Nampak's shares and other info

The company at the same time said headline earnings per share were expected to decrease to between 33c and 37c for the year ended September, compared to headline earnings per share of 62.3c in the prior year, representing a decrease of between 41% and 47%.

Nampak said that with its current debt package and US private placement funding maturing in December 2023 and May 2023 respectively, coupled with the "requirement to repay R1.35-billion of net debt by 31 March 2023", the group was required to refinance its debt package before the end of March next year.

"This refinancing is in process and subject to the group raising capital of no less than R1.35-billion by 31 March 2023."

Nampak said about R1.35-billion would be used to repay its lenders "as a minimum requirement for the refinancing".

A total of R350-million would be used to upgrade a beverage can line in SA, which will "add urgent production capacity to satisfy the unprecedented growth in beverage can demand". It also said R150-million would be used to provide "operating flexibility", as the group is "currently operating with inadequate capacity to handle seasonal fluctuations in working capital requirements".

Another R150-million would be used to cover the estimated transaction costs of both the refinancing and the proposed rights issue.

HEFTIER THAN EXPECTED
ClucasGray portfolio manager Brendon Hubbard said the size of the proposed rights issue was double what he had been expecting, adding he thought Nampak would come to market looking to raise between R750-million and R1-billion.

But Hubbard said at the same time the actual underlying business of Nampak was good, adding there was strong demand for cans in the market and the company was struggling to keep up with demand. He believed the rights issue would, at a stroke, put the group back on a sound footing insofar as its debt issues were concerned and also provide much needed working capital so it can properly benefit from demand in its market.

"The business is by no means in trouble. The demand is there and they are battling to keep up."

Hubbard said that in light of the group’s debt repayment crunch, Nampak’s paper and plastics business was up for sale, adding that this would have brought in about R2-billion. The problem was when a company was a forced seller, potential buyers "go in with ridiculously low prices".

He believed that in time Nampak would still sell its paper and plastics business, which would also bring in more cash for the group.

READ | Nampak slumps 13% as spectre of rights issue still looms

Makwe Masilela, who heads up Makwe Fund Managers, said he could understand the reaction of investors to the news, citing the size of the rights issue when compared to Nampak's market value.

"We know when you do rights issues they are dilutive by nature, so it is worrisome that they are raising this amount of money."

Masilela said what concerned him most was that the bulk of the debt was going to service debt, rather than for its operations or growth.

Nampak said a circular in respect of convening an extraordinary general meeting this would be published on or about 15 December.

It said if the rights issue were successful, it would "enable management to focus on delivering on Nampak’s growth strategy and result in a simplified, more robust capital structure".