Mediclinic’s move to refinance its existing Swiss debt well ahead of its contractual redemption date has been hailed as a brilliant strategic move by analysts, who said this could see the company save in excess of Sf65 million (R568m) on financing costs.
Mediclinic announced its intention to raise R5 billion in equity in a rights offer at the beginning of this month.
On Friday it said the proceeds from the rights offer would be used partly to refinance its debt facilities in Switzerland and partly to pursue strategic growth and development opportunities.
Mediclinic has R28bn in existing debt facilities in South Africa and Switzerland.
The Swiss debt of R24.4bn is to be refinanced through a combination of new debt facilities raised in Switzerland and Luxembourg, as well as existing cash resources held offshore and the total proposed fundraising in South Africa of R11.2bn through debt and equity.
Although the existing Swiss debt was only due to mature in October 2014, Mediclinic said it wanted to take advantage of the favourable debt market conditions in both Switzerland and South Africa to secure lower interest rates.
On Friday the company said the rights offer would consist of 174 641.84 new Mediclinic shares at an issue price of R28.63 a share. The ratio would be 26.77263 new shares for every 100 held on the record date of September 14.
The offer price is at a discount of 25 percent to the 30-day volume-weighted average price of R38.17 a Mediclinic share as at July 31.
By refinancing its existing debt, the cost of Mediclinic’s new Swiss debt was expected to be 2.5 percent a year, compared with the current cost to the group of 5.6 percent.
The total saving in third-party financing costs would therefore be R550m a year.
Jean Pierre Verster, an analyst at 36One Asset Management, said although it was not pressing for Mediclinic to settle its old Swiss debt right away, it was a strategic move to refinance it while interest rates were very low.
“The risk with waiting until close to the contractual debt redemption date is that the closer you get to the deadline, the bigger the chances of higher-than-expected interest rates. So it’s always best to make use of the refinance opportunity when you have a low interest rate environment,” Verster said.
Mpandekazi Maneli, an analyst at Cadiz Asset Management, said taking advantage of the favourable capital market and lower interest rates would effectively eliminate refinancing uncertainty for Mediclinic.
Mediclinic chief executive Danie Meintjes said the proceeds of the rights offer would also be used to pursue growth.
Mediclinic shares fell 0.47 percent to R42.20 on Friday.