Wholesaler Metcash (ASX: MTS) hopes to raise $330 million to pay off debt despite its retailers performing well in the Covid-19 economy.
The company behind major Australian retailers like IGA, Mitre 10, and Cellarbrations, intends to repay $292 million of net debt from the $300 million placement that will be offered to institutional investors at $2.80 per share.
The placement, representing a 7.9 per cent discount to the last traded price of $3.04, will result in the issue of 107 million shares, representing approximately 11.8 per cent of Metcash's existing shares on issue.
In addition, the company has secured $180 million of additional short-term committed debt facilities from existing lenders, enabling Metcash to embark on its Covid-19 game plan.
The combination of net proceeds from the equity raising and additional liquidity through the $180 million short term facilities means Metcash will have $852 million of proforma headroom.
While increasing liquidity is the main rationale for the raise, Metcash also intends to use the funds to continue investing in its retail network and completing three bolt-on acquisitions that are expected to close in 1H21.
"The Covid-19 pandemic has presented a unique set of challenges for Australian businesses including an unprecedented level of uncertainty," says Metcash Group CEO Jeff Adams.
"We have responded by changing our key priorities during this period to protecting the health and wellbeing of our people; keeping our supply chains open to ensure delivery of essential goods; and protecting our balance sheet."
"The equity raising together with new debt facilities should provide us with flexibility in this uncertain environment. It will enable us to continue to support our independent retailers through this challenging period."
In the background of the equity raise is a portfolio of companies receiving Metcash's marketing, merchandising, and operational support that are performing well in the Covid-19 economic reality.
Of particular note is the company's food customers; the company has seen a significant uplift in sales in March and early April, but the earnings benefit from this uplift has been partly offset by increased costs to service the elevated demand and the need to manage health risks.
Total food sales for the five months ended March 2020 increased by 4.3 per cent, while liquor sales increased 3.2 per cent.
Hardware sales declined by 1.3 per cent during the period which was an improvement on the decline in 1H20 of 4.2 per cent. Metcash says the decline in sale reflects the slowdown in construction activity.
"All our Pillars are currently trading, although trading restrictions are impacting the Liquor Pillar and there is a minor disruption in the Hardware Pillar," says Adams.
"We have invested in additional working capital to further support our retailers through this period, particularly in Liquor where our Australian 'on-premise' customers and New Zealand retail customers are currently subject to restrictions."
Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.
Business News Australia
Get our daily business news
Sign up to our free email news updates.
Help us deliver quality journalism to you.
As a free and independent news site providing daily updates
during a period of unprecedented challenges for businesses everywhere
we call on your support