Raising pots of money

What? Steinhoff with another announcement, post the desire to become primarily a European company by listing, if not revenue, because they are there already. What is going to happen is simple (or not so simple), if you are a local shareholder you are going to be able to participate in a rights issue whereby the company will issue 16.58862 new ordinary shares for every 100 existing ordinary shares at a price of 52 Rand a share. Why 52 Rand a share?


Well, that was the price of the 150,100,412 Steinhoff ordinary shares that are going to be issued in Euros and Dollars (Eur 3.54 and USD 4.83 per share) that has been decided on for the book build that Barclays, BNP Paribas, Citigroup, Commerzbank and HSBC will embark on up to the 10th of July, that is next week Thursday when the new shares will list.


The shares will not be listed in Frankfurt though, because they being Steinhoff do not have a Frankfurt listing yet, that is still coming. So as far as I understand, these would have been priced in Euros and Dollars for the purposes of being listed there in the future. My word, it is not easy to understand and harder to explain without using the full explanation of when the Frankfurt listing is likely to happen. Very long, but worth repeating from the Steinhoff release:

In order to achieve the proposed Frankfurt listing, Steinhoff has engaged with the Financial Surveillance Department of the South African Reserve Bank ("FinSurv") to facilitate the inward listing of "Holdco AG", a company incorporated in Europe, on the JSE Limited ("JSE"). Steinhoff has received formal approval from FinSurv that Holdco AG will utilise its shares as acquisition currency for the purpose of acquiring the entire issued share capital of Steinhoff and within the framework of the Exchange Control Inward Listing Rules seek a listing on the JSE, accompanied by a listing on the prime standard of the Frankfurt Stock Exchange. Holdco AG intends to commence with the listing process as soon as possible, subject to prevailing market conditions and the required level of support from Steinhoff shareholders, after the release of Steinhoff's 30 June 2014 audited annual results in early September 2014. Holdco AG will become a South African tax resident before acquiring Steinhoff. Once the Frankfurt listing and inward JSE listing have been implemented, Holdco AG (including 100% of Steinhoff) will be managed from South Africa.


Easy right? I think that without the 100 percent assurance of a Frankfurt listing that the appetite might be a little more subdued than otherwise usual, more especially if you are trying to attract a whole new subset of investors. What about the other shares? 150 million shares being offered to people with offshore money and 200 million shares being offered to the local shareholders. In this whole process however, controlling shareholders have agreed to renounce their rights. All 175 odd million, of course most of that is going to the accelerated book build, including another 25 million. And the rest of the shareholders will follow their rights in Rand terms.


And what is the money going to be used for? "The net proceeds of the ABB coupled with the Rights Issue proceeds received from foreign participants will be repatriated to South Africa and used to strengthen the balance sheet and will give the company greater flexibility to continue the growth of its retail operations."


Read into that JD Group of course which they want to own all of, or 98 percent of (currently 86.2 percent I think), they have had to also sink 860 odd million into that one. So, 7.805 billion Rand is what they want to raise. Yowsers. That is big money. And dilutionary if you DO NOT follow your rights. I would, if you have the money, it is not expensive, plus I think that this management team have great plans afoot. It is all rather complicated for those shareholders who like to keep things simple, keep the number of shares in issue pretty constant.