City Lodge shares hit by rights offer plan
DURBAN – City Lodge tanked more than 15 percent on the JSE yesterday after the hotel chain group announced that it planned to raise R1.2 billion through a rights offer to deal with the coronavirus pandemic that has disrupted its operations since March.
The group said it planned to raise the money after lockdowns imposed as a result of the pandemic left it with no income after nearly 120 of its hotels in South Africa and across the continent were forced to close doors as a result of lockdown measures imposed to contain the spread of the pandemic.
City Lodge said limited operating activities had since resumed with the easing of the measures with seven of its 55 hotels in South Africa now operational. It said three of the hotels would be used as quarantine sites, while two would provide accommodation to stranded international tourists at limited or low occupancies rates and the remaining two for accommodating essential services workers.
It said it had also opened its doors for business travel accommodation.
“This position will be revisited on an ongoing basis and amended where necessary, based on demand,” the group said, adding that its operations remained distressed as a result of continuing trading conditions.
“Given the extreme uncertainty facing the company and the losses currently being incurred due to Covid-19, the associated lockdown and travel ban, the board believes it prudent to put in place the necessary measures to be able to proceed with an underwritten, renounceable rights offer of R1.2bn.” City Lodge said the proceeds from the rights issue would allow it it repay its corporate debt, provide for its obligation under the black economic empowerment funding arrangements.
It said it would also give the company sufficient working capital to fund its cash flow shortfall as a result of the impact of the Covid-19 pandemic and national lockdown and create debt capacity and a flexible capital structure to position the company for future growth. City Lodge shares closed 16.67 percent lower at R25.50 from Friday’s close of R30.60.