Monday 24th June 2019
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Chinese investment manager Citic Capital will get a seat on Tourism Holdings' board, paying full price to lift its stake in the rental RV operator as part of an $80 million capital raising.
Citic, which oversees US$26 billion of assets, will pay $4.02 a share in a $30 million placement to increase its shareholding to 16.9 percent. It will appoint its vice chair Guorong Qian to the THL board as a non-independent director. The shares closed at $4.04 on Friday.
Tourism Holdings will also raise $50 million in a fully underwritten one-for-nine rights offer at $3.40 a share, a 15.8 percent discount to Friday's close. Citic, via its HB Holdings entity, will take up its entitlement in the rights offer to preserve its stake, and will participate in any shortfall bookbuild.
The company will sign a memorandum of understanding with Citic to explore opportunities in China. Tourism Holdings will supply the intellectual property and resourcing without an obligation of stumping up capital, while Citic will provide capital and access to opportunities in the Chinese market.
The RV operator is raising the funds to give it headroom to pursue any bolt-on acquisitions in its existing markets as well as regions where it doesn't operate, including China.
The money will also go towards funding its TH2 joint venture with Thor Industries, which is seen breaking even in the 2022 financial year.
Tourism Holdings' losses from TH2 are expected to be US$8.5 million in the 2020 year, up from an earlier estimate of US$5 million. The increase was largely due to delays in the roll-out of software development. TH2 closed its Mighway USA business due to unacceptable cash burn.
The company trimmed the top end of its twice-downgraded earnings guidance, which excluded the impact of a potential tax issue in Australia that may be more expensive than previously announced.
Tourism Holdings expects a profit of $25-$27 million in the year ending June 30, down from its previously downgraded $25-$28 million. That excludes the tax dispute, which the company said may cost as much as A$3.6 million due to higher legal costs and accrued interest. It had previously said the disputed amount was A$2.5 million.
The company reviewed its US business after an unacceptable performance, which will see it shrink the fleet and rein in capital spending.
The Australian and New Zealand businesses are meeting expectations, and are seen delivering earnings growth for the year ending June 30.
Once the new capital is raised, Tourism Holdings' leverage ratio will improve with net debt at 1.6 times earnings before interest, tax, depreciation and amortisation from its current level of 2.3 times.
The company intends to review its borrowing facilities - which total $306 million and mature between January 2020 and July 2022 - to get a better mix of funding and tenor.
Jarden, formerly First NZ Capital, is the lead manager for the offer and is also providing a full underwrite. The underwriting fee is 1.25 percent of the gross proceeds of the rights offer and the lead management fee is 1 percent .
The placement will take place today, while the rights offer will open on July 3 and close on July 16.
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