Photo: Cindy Waxa
JOHANNESBURG - Shares in listed construction group Basil Read slumped by 10.7percent yesterday after the financially distressed firm released the terms of a proposed partially underwritten and significantly discounted R300million rights offer.

The group’s shares closed yesterday at 58c a share compared with its 65c a share closing price on Friday after earlier plunging to a low of 48c a share during the day.

The slump in the group’s share price was in reaction to the rights offer issue price being at a 63percent discount to Friday’s closing share price.

Basil Read said yesterday that it recognised that it was “crucial” to raise the funds it needed.

It said the rights offer was conditional on receiving a minimum total subscription amount of R168m.

The group said the strategic realignment of the group and the removal of liquidity constraints should have a significant positive impact on the group.

“A cash improved and strategically repositioned business should result in improved profitability going forward,” it said.

But it said in terms of the debt standstill agreement that was announced in December, it had agreed on a milestone with the standalone creditors to raise a minimum of R300m by way of the rights offer by March 31.

“Failure to raise the R300m could result in a default under the debt standstill agreement,” it said.

The debt standstill agreement was to provide the group “with the necessary breathing room and stability to focus on operations”.

But it indicated then that long-term funding was required to recapitalise the group and provide it with the necessary platform and working capital to carry out its operations efficiently and without any cash flow limitations while implementing its strategic objectives.

The group is proposing to raise R300m through an offer of about 1.36million rights offer shares at a price of 22c a rights offer share in the ratio of 1035.45602 rights offer shares for every 100 existing Basil Read ordinary shares held on February 9, the record date for the rights offer.

It has entered into an agreement with the Industrial Development Corporation (IDC) to underwrite the rights offer up to a maximum of R89.1m “to provide the company and shareholders with the certainty of a successful implementation of the rights offer”.

A number of major shareholders, including Allan Gray, PSG Asset Management, Prudential Investment Managers, the IDC, the black-empowered Sishen Iron Ore Company Community Development Trust and Ashburton Fund Managers, have undertaken to support and follow their rights to a total of R166m.

Basil Read signalled its intention to embark on a rights issue in August when it reported a net loss loss of R474.1m for the six months to June.

It attributed the loss to provisions on contracts within the roads division, including the R88.9m write down of goodwill because of decline in earnings; claims recoveries being significantly below expectations; cost overruns, including penalties for delays, on certain of the company’s distressed projects; and bad debts.

The group stressed that a few legacy cash-depleting projects over the past few years had also negatively impacted the cash reserves of the company, resulting in cash flow being constricted and the group being unable to meet future cash reserves without recapitalisation.

The rights offer represents the second phase of the recapitalisation of the group.

The first phase included seeking a R150m bridging finance facility from the IDC, which was approved and has already been fully drawn down.

Basil Read said yesterday that in addition to recapitalising its balance sheet, the group was undergoing a strategic repositioning.