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Yesterday Kathmandu confirmed it was raising $207m in order to cope and help it survive the turbulent Covid -19 pandemic

Thursday 2nd April 2020

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Yesterday Kathmandu confirmed it was raising $207m in order to cope and help it survive the turbulent Covid -19 pandemic. It CEO stated that “the proceeds of the equity raising will be used to deleverage the group’s balance sheet and provide liquidity and funding in the medium term should we experience a prolonged global Covid-19 pandemic.”

However, a leading shareholder, Briscoe Group, though supportive of the Kathmandu’s capital raising to strengthen its balance sheet, decided not to participate in Kathmandu’s equity raise, as Briscoes saw its immediate priority as to ensure the strength of their own business both during the pandemic and for the future.  Briscoes owns 16.3% of Kathmandu. In October last year Briscoes participated in Kathmandu’s capital raise of $145m to acquire Rip Curl.

Kathmandu’s latest capital raising at 50c per share was fully underwritten. This price represented a 51% discount to the closing price of $1.02 on the 30th March.  Of the total to be raised $30m will be placed with institutional investors and balance of $177m represents an entitlement offer which existing retail investors can participate in. 

Credit Suisse (Australia) and Jarden Securities are arranging the equity raise, while Craigs Investment Partners and Forsyth Barr are joint lead managers. 

The retail offer opens on the 6th April and closes on April 17th, with the placement expected to be settled on the 8th April. 

Kathmandu will issue about 413.9 million new shares. This represents 140% of existing shares on issue. The money raised will be used to strengthen the balance sheet and provide operating liquidity (including estimated redundancy costs). It will reduce debt by paying off $86m of its total debt. Cash on the balance sheet will be increase by $115m and settle transaction costs of the equity raise. The group will have total liquidity of $315m, with no debt maturities before November 2022. Kathmandu expects to have enough liquidity to cover payments and capital requirements for at least 12 months 

In a presentation document Kathmandu’s CEO, Xavier Simonet, reported the group had received waivers from its banking covenants subject to raising $150m of new equity.

"The group’s model, which is based on conservative assumptions, indicates that a waiver for the periods ending 31 July 2020 and 31 January 2021, and a relaxation of certain covenants for the period ending 31 July 2021 (subject to successful completion of a minimum NZ$150 million equity raising) will provide the group with sufficient time to achieve full compliance with its existing covenants," it said.

"However, there remains a risk that the impact of Covid-19 on the group is worse than anticipated and may result in non-compliance with covenants for the period ending 31 July 2021 or otherwise trigger an event of default under the group’s facilities, and the group is unable to obtain further support from its banking group."

 “These results also show the strong position we would have been in to drive the next wave of our growth in line with our long-term diversification strategy had the global Covid-19 pandemic not occurred,” Simonet said.

“In this situation of uncertainty and challenges, the health and wellbeing of our team and customers is paramount, while we maintain business continuity and ensure we are well positioned to bounce back quickly when more normal operating conditions return.”

Usually the second half provides a larger percentage of sales and profit for the year. However, this will not be so this year as the board said it is likely to have a material adverse impact on earnings over the next 12 months.   

Kathmandu has suspended its dividends and will not resume dividend payments until trading conditions improve materially. 

Below is a link that gives in depth information about Kathmandu’s interim results and the presentation mentioned above.

CLICK HERE

 This article is based on an article by Calida Stuart – Menteath of the NBR




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