South Africa’s third-largest grocery chain, Pick n Pay, has announced a rights offer to issue 252.2 million new shares at 15.86 rand per share. The initiative aims to raise 4 billion rand ($221 million) to reduce the company’s mounting debt.
Pick n Pay, which operates 2,279 stores across South Africa and seven other African countries, stated that the rights offer price represents a 32.48% discount to the theoretical ex-rights price, calculated based on Wednesday’s closing price of 27.39 rand. Shareholders will be able to subscribe to the new shares at a ratio of 51.11 rights offer shares for every 100 ordinary shares currently held.
The rights offer is fully underwritten by Absa Bank, Rand Merchant Bank, and Standard Bank. Ackerman Investment Holdings, the controlling and founding shareholder of Pick n Pay, has committed to taking up 1.011 billion rand of the offer.
The newly appointed CEO, Sean Summers, faces the challenge of revitalising a retail business that has been losing market share to larger competitors such as Shoprite over the past decade. The deterioration in the performance of Pick n Pay’s core supermarket business resulted in a significant trading loss of 1.5 billion rand for the division and an overall group loss of 3.2 billion rand for the 52 weeks ending on 25 February.
The company’s net debt rose to 6.1 billion rand during the same period, and the financial strain necessitated a non-cash impairment of 2.8 billion rand. These factors have severely impacted the group’s liquidity and solvency, prompting the board to implement a two-step recapitalisation plan. This plan includes the rights issue and a proposed listing of Pick n Pay’s discount grocery retailer, Boxer.
Summers’ task to turn the company around comes amidst these significant financial challenges, with the success of the rights offer being a crucial element in stabilising Pick n Pay’s financial position.
