Dawn rights offer a big discount

Distribution and Warehousing Network (Dawn), the struggling building materials specialist, has pitched the price of its proposed R350m rights offer at a significant discount to the market price and net asset value (NAV).

On Thursday, Dawn confirmed the rights offer shares would be priced at 100c per share. This is well off Tuesday’s closing price on the JSE of 210c and substantially lower than the last stated tangible NAV of close to 250c per share.

Dawn indicated that major shareholders Coronation Asset Management and Ukhamba Holdings (an empowerment associate of mobility conglomerate Imperial Holdings) would follow their respective rights to the tune of R100m and R49m.

An interesting twist to proceedings sees “deep value” investment specialist RECM & Calibre (RACP) emerge as the underwriter for the rights offer.

RACP will underwrite the offer to a maximum of R210m.

“We met with management, and got the impression that the company is now on the right course. They need time, though, and we can hopefully give them the time they need,” said RACP CEO Piet Viljoen.

RACP has supported several turnaround situations in the past few years, including at diamond miner Trans Hex, mining services specialist Sentula and unlisted liquor group KWV.

Dawn, headed by former Hudaco boss Stephen Connelly, has warned it will trade in the red for the year ending March.

The proposed rights issue comes after Dawn considered various initiatives to reinforce its balance sheet. Initially there were expectations that Dawn – which sold off its 49% stake in Heunis Steel last year — could sell off operational assets.

The company last held a rights offer in 2009, when R300m was raised.

But a successful new rights issue will effectively mean Dawn has raised R1.28bn in fresh capital in less than three years if one includes the mid2014 sale of 51% of the company’s Grohe operations for R880m and the recent sale of Heunis Steel for R50m.

That is more than double Dawn’s market capitalisation of R515m. The company’s shares have lost more than 75% of their value, since trading at levels of close to R10 on the JSE three years ago.

THE PROPOSED RIGHTS ISSUE COMES AFTER IT CONSIDERED VARIOUS INITIATIVES TO REINFORCE ITS BALANCE SHEET