Nampak, ‘Beware the Ides of March’
NAMPAK, “Beware the Ides of March”.
Despite this same warning by a soothsayer, Roman leader Julius Caesar ended up stabbed to death.
However, in Caesar’s case he was stabbed by members of the Roman Senate, who were scared that he was becoming too powerful.
The question for Nampak is: “Are your shareholders and lenders all on the same page in this very tough macroeconomic environment?
Will the lenders give you leeway and will shareholders back a rights issue, which will dilute their shares further?
This as Nampak’s rapidly declining market capitalisation was at R663 million on Friday.
Unfortunately, the company’s net debt burden at R5.243 billion at September, 30, 2022, is 7.8 times the value of the company, which could be fatal.
In the annual results released in December, CEO Erik Smuts said in order to refinance the group’s debt package and repay R1.35bn to lenders in March 2023, it was planning to approach shareholders “for such approvals as are required to proceed with a rights issue”.
But Nampak’s first attempt to secure shareholder approval on a Extraordinary General Meeting on January 18, 2023, failed with the meeting being adjourned.
In January the firm issued a first quarter trading update, saying it had reduced its right issue plan to R1.5bn from R2bn, after making a R500 million reduction in the planned rights issue.
And on March 8 Nampak is scheduled to reconvene the Extraordinary General Meeting.
The market will be keeping a close eye on the company to see if it manages to pull off a New Funding Package, as outlined in its January trading update.
To put it into context, Nampak raised an unsecured Revolving Credit Facility and Term Loans (Funding Package) in 2018 with components, which were to mature in September 2022 and September 2023 respectively, in addition to the remaining final portion of US Private Placement funding, which matures on May, 28, 2023.
“Over the last three years, numerous covenant relaxations and extensions of maturity dates have been granted by the lenders primarily due to the impacts of a weakening rand-dollar exchange rate and the Covid-19 pandemic,” it said
These relaxed covenants were complied with throughout the period.
At the end of financial year 2022, the maturity date of the Funding Package was extended to December, 31, 2023, conditional on Nampak launching a rights offer to raise minimum net proceeds of R1.35bn, with such proceeds to be applied to reducing debt.
The group appointed Metis Strategic Advisors to negotiate a new funding package with the lenders.
A condition of the new funding package under negotiation was Nampak launching a rights offer to raise minimum net proceeds of R1.35bn, with such proceeds to be applied to reducing debt.
The group said its lenders were also in the process of appointing debt advisers to facilitate the process of reaching consensus between all the group’s lenders in determining the participants, appropriate size and terms of the new funding package.
“Shareholders holding at least 30% of Nampak’s ordinary shares indicated their requirement for the group to first finalise the new funding package prior to launching the rights offer.
“The Nampak board has resolved not to launch the proposed rights offer until such time as the new funding package has been secured and approved by both the credit committees of the lenders and the Nampak board.
“Shareholders will be updated on the new funding package, to the extent available, before the Extraordinary General Meeting,” it said.
However, a shareholder, who declined to be named, contacted Business Report at the weekend, and shone a light into the troubled annual general meeting on Thursday, which a stellar News24 article detailed: “The debt, the bonuses and the bailout: Shareholders grill Nampak at AGM”.
And according to a JSE Stock Exchange News Service statement issued last week, 44.21% shareholders voted against the company’s non-executive directors’ remuneration special resolution, which means the non-executive directors will not be paid as 75% approval is required.
For Nampak 2021 remuneration, its CEO Smuts total remuneration sits at R26.2 million of which roughly R9m is an annual incentive and R9m a deferred incentive.
This as Glenn Fullerton, the chief financial officer, is paid R18.26m of which R6.1m is an annual incentive and R6.1m is a deferred incentive.
Nampak had a profit of R377m in 2021, but in 2022 Nampak made a loss of R26m. And the top dogs still got a hefty package, albeit somewhat reduced for 2022’s payout.
In Nampak 2022 remuneration, Smuts earned R20m, R5.8m in annual incentives and R5.8m in deferred incentives.
Fullerton got R15m, R4.3m in annual incentives and R4.3m in deferred incentives.
And yes, you can guess, while some ate roast beef and went to the market, that Little Piggy we know as the shareholder got none.
For the financial year ended September 30 the board decided due to the state of finances to not pay a dividend, but deemed it fit to fill the executive feeding trough to retain talent.
And in fact there has been no dividend been paid out in six years.
The concerned shareholder, flagged the underlying issues plaguing the debt-laden company, asking: “Could this be the next Tongaat Hulett? Could the company be heading for business rescue. There are similar metrics.”
And while the shareholder failed to elaborate, the plight of Tongaat Hulett is a very sad tale in the footnotes of South Africa’s corporate history. Especially considering the thousands of livelihoods in the sugar sector that depend on it.
In Tongaat Hulett’s case, the company’s controversial rights issue hits the skids and its lenders at the last moment pulled the rug out from under the struggling firm’s feet, cutting off the funding taps at a critical time.
It was forced into business rescue thereafter. Its fate currently hangs in the balance.
And while Nampak’s name is clean unlike Tongaat Hulett’s, blemished after accounting shenanigans and with its former management facing criminal charges, the packaging firm’s shareholders are not exactly on the same page as the management.
And while the firm’s management is probably getting grey hair trying to turn the situation around, big performance bonuses are a bad look when a firm is failing and shareholders aren’t getting bang for their bucks.
It doesn’t earn respect at a very critical time when the executive team needs their shareholders’ trust.
Packaging firm Nampak’s share price closed up 3.23% on Friday.
I for one hope Nampak fights its way out of the financial quicksand it finds itself in.
But only time will tell.