Elders has announced it has raised $102.4 million via a share placement and rights issue in order to fund the repurchase of its hybrid securities at $95.00 each. Elders CEO Mark Allison said, “The proposed simplification of our capital structure is the final step in the transformation of Elders from the complex and highly-geared conglomerate it once was to the simplified and efficient business we now are.”
15 June, 2016
Back in the days when Elders was known as Futuris, it issued convertible unsecured notes with discretionary, non-cumulative distributions and a face value of $100. When the company hit hard times in 2009 and stopped paying distributions on the hybrids, the price plummeted and remained a fraction of its face value for years. Only when the company announced a buyback of $30 million worth of the hybrids at $80 in August last year did the price recover.
Now Elders has announced its intention to make another buyback offer. Details have not yet been released but the last sales price before trading on the ASX was halted was $89.00, so a higher buyback price is to be expected. The previous buyback was “on-market” due to Corporations Law restrictions and purchases were made on a first come first served basis.
One issue for long-suffering holders is whether to accept the buyback terms or to remain as holders. Back in 2011 when the Elders did not implement a remarketing process as the first remarketing date approached, under the terms of the prospectus the distribution rate was stepped up by 250bps. Now another remarketing process has not been initiated, another step-up amount of 250bps has been added, which takes the margin to 720bps. At this stage the margin is notional as distributions are at the discretionary of directors and one has not been paid since 2008. However, before ordinary shareholders can be paid a dividend, hybrids holders have to have received at least 12 months’ worth of distributions. This may put pressure on directors to resume hybrid distributions. In any case, this is a security not for the faint-hearted.
