East Africa exit could pay off for Nampak

• Debt-laden packaging group says it has received offers for assets in Ethiopia, Kenya, Tanzania but a rights offer remains a condition for refinancing

Nampak says it is making headway in leaving East Africa where currency volatility has hammered its business. This could free up as much as R250m in cash for the debt-heavy packaging group. The board also announced the appointment of Michael Dorn as chief restructuring officer to oversee a keenly awaited plan that has finally been submitted to lenders for consideration.

Nampak says it is making headway in exiting East Africa where its business has been hammered by currency volatility, a move that could free up as much as R250m in cash for the debtstricken packaging group.

The board also announced the appointment of Michael Dorn as chief restructuring officer to oversee a keenly anticipated plan that finally has been submitted to lenders for consideration. Still, it emphasised that a rights offer remains an essential condition for refinancing.

JSE-listed Nampak, whose market capitalisation has dwindled to R690m from R40bn in its heyday, is floundering after an ill-fated expansion into the rest of Africa. The company owed R5.2bn at the end of September last year, sparking a scramble for cash to service debt on time.

In a pre-closed period conference call on Thursday CEO Erik Smuts said that while the trading environment was becoming increasingly tougher amid rising costs and interest rates, the opportunities for deal making were, conversely, improving.

“The divestitures from Ethiopia, Kenya, Tanzania and our general metals business in Nigeria have gained a lot of traction and we’ve received offers for various assets in these categories,” Smuts said.

“We are confident that we will not only stop the bleeding but also realise up to R250m of cash through the sale. So this should be a positive step for our group to de-gear our balance sheet.”

Management has also been at pains to appease shareholders who have been reluctant to support a rights offer. It reduced a proposed R2bn capital raising via the issue of new shares to R1.5bn, though that still far exceeds the company’s market cap.

The group recently sold its crate-making and ancillary plant equipment to Mpact for R40m, but that pales in comparison to its debt obligations of R2.35bn in the short term.

An amount of R1.35bn that the group had hoped to raise in the rights issue is due on Friday, while another $55m (about R1bn) is due at the end of May.

CFO Glenn Fullerton said Nampak is in discussions with the lenders to address the R1.35bn repayment, which will be aligned to the new rights issue process.

“We also have to address the debt extension milestones that have been extended to December 2023,” Fullerton said.

In the five months to February 28, the Johannesburg-based company reported operating profit in Zimbabwe and Nigeria was well below trading profit due to a material increase in net foreign currency losses.

Nampak said it remains constrained in its ability to secure some currency stability in Angola, Nigeria and Zimbabwe as no effective hedging instruments are available in those countries.

The issue was compounded by factors including comparatively higher debt levels, coupled with increased interest rates that resulted in a 45% increase in net interest costs compared to the prior period.

“All of this contributed to a small net loss after tax,” said Smuts.

“We are providing a very strong signal to investors that very material impairments in both Angola and Nigeria are likely to result from the massive increase in the weighted average cost of capital due to higher incountry risk premiums,” he said. The company was unable to provide the amount of impairments at this stage, he added.

The board said the recent establishment of a restructuring committee to provide support and oversight of the restructuring was a demonstration of its commitment to the execution of the plan.

Moreover, it said lenders had backed the appointment of Dorn, who will report directly to chair Peter Surgey.

“The separation of power and the independence of reporting to the chair is there to give lenders the comfort that the person will act objectively.

“He will have a focused approach and attention span directed at the execution plan,” Smuts said.

“So in a way, it allows for the CEO and the team to be released from the complications of doing the restructuring and refinancing of the balance sheet, and to focus on the management of the company itself.”

In a move hailed as a victory for shareholder activism, Nampak recently appointed three new directors — Tjaart Kruger, Phildon Roux and André van der Veen — a move that saw the shares jump more than 10% after the announcement.

Van der Veen, who is renowned for turnaround expertise, is also a partner at Nampak’s outspoken shareholder, A2 Investment Partners.

Nampak’s share price fell as much as 7.37% on Thursday, but ended the day 2.1% lower at 93c.

WE ARE CONFIDENT WE WILL NOT ONLY STOP THE BLEEDING BUT ALSO REALISE UP TO R250M OF CASH THROUGH THE SALE

Erik Smuts Nampak CEO