Pick n Pay gets lifeline from FirstRand
J- FirstRand has thrown Pick n Pay a lifeline, with the South Africa debt-laden grocer renegotiating terms for loans it carries on its books ahead of a stated Boxer spin-off and separate initial public offering (IPO).
Boxer has been Pick n Pay’s start performer as South African consumers opt for value propositions and analysts say the Boxer IPO is likely to be oversubscribed. However, it is Pick n Pay’s debts that have heightened the company’s challenges at a time when rival operator, Shoprite is accumulating more market share.
“It’s a much needed reprieve and a lifeline that means the retailer is able to sort out its mess in due course and also frees up some breathing space for the IPO,” said a manager with a retail operator.
Assistance
Pick n Pay announced on Friday that pursuant to a special resolution passed at its July 2023 annual general meeting, its Board of Directors was mandated to provide direct and indirect financial assistance to related or inter-related companies.
“The Board has adopted resolutions authorising the company to provide financial assistance pursuant to written amendment agreements, amending the terms of (i) an existing loan agreement with, amongst others, FirstRand Bank Limited (acting through its Rand Merchant Bank division) (RMB) for loan facilities of up to the value of R1 billion,” the company said in a notice.
Additionally, Pick n Pay has also renegotiated an existing loan agreement with RMB Bank and a syndicate of other banks for loan facilities of up to the value of R4.5 billion.
The total value of these facilities, together with any previous resolutions to provide financial assistance during the current financial year, ‘exceed one-tenth of one per cent of the company’s net worth,’’ it said.
It was not immediately clear how the company intends to use the money. Apart from the Boxer IPO, Pick n Pay has also announced a R4billion rights offer.
Pick n Pay traded 2.69 per cent weaker on the JSE on Friday at R18.10 and is down 47.7 per cent in the past six months. The company has reported negative growth in retail sales for the 47 weeks trading period to January 21, 2024 which was further to the R570 million post-tax loss for the half-year period to the end of August 2023.
Surprise
Roy Topol, a Portfolio Manager at Cratos Asset Management, has previously said that the rights issue announcement by Pick n Pay had taken the market “by surprise as there was no confirmation about the rights price, the potential underwriters” or the exact timing. “The urgency of this announcement seems to have come from pressure from the lenders due to the high debt levels over the last year which seem to have breached lending covenants,” he said.