The share price of JSE-listed packaging manufacturer Nampak fell around over 30% on Thursday morning, following the group’s announcement of a potential rights offer of up to R2 billion during the first quarter of 2023.

It says it will convene an “extraordinary general meeting” and expects to publish an update around 15 December.

It noted in a Sens statement issued on Thursday that the rights offer will assist in repaying its debt refinancing requirements of R1.35 billion by 31 March 2023 and, if successful, will further enable it to focus on delivering its growth strategy and result in a “simplified, more robust capital structure”.

It intends to use the proceeds as follows:

R1.35 billion to repay lenders, as a minimum requirement for the refinancing
R350 million to upgrade a beverage can line in South Africa to add urgently-needed production capacity to satisfy the growth in demand
R150 million to provide operating flexibility as the group is currently operating with inadequate capacity to handle seasonal fluctuations in working capital requirements
R150 million to cover estimated transaction costs of both the refinancing and the proposed rights offer.
The group says historical decisions to fund the African expansion mainly through US dollar debt has resulted in macroeconomic and operational pressures significantly straining its balance sheet, subsequently requiring it to seek relaxations from its funding partners.

Added to that, Nampak says several historic impairments, including the goodwill in Nigeria and asset impairments in Angola, with an expected credit loss raised in 2019 against the debt from the Reserve Bank of Zimbabwe, have all resulted in elevated levels of gearing.

However, it says a high level of complexity remains with its operations spread across 10 African countries, many of which it says depends on commodities and are therefore vulnerable to price changes, currency instability and a lack of availability of foreign exchange.

“The group is also being disproportionally funded by a complex consortium of lenders with gearing levels exceeding shareholders’ equity.”

Moreover, it says self-help measures have not fully yielded the desired results for the year ended 30 September 2022.

It expects its headline earnings per share (Heps) to decrease by between 41% and 47% to between 33 cents and 37 cents.

Nampak adds that considering the proposed rights offer and associated capital raise, shareholders can expect to see the following in the FY22 financial results due on 5 December:

R222 million benefit of pension fund surplus recognised
Higher net foreign exchange losses of R546 million (FY21: R246 million) incurred mainly due to foreign currency shortages in Nigeria
R101 million increase in net finance costs
R512 million net impairments (FY21: R264 million).