The Finance Ghost: Afrimat and Ascendis — capital raises for different reasons

Afrimat is one of the best companies on the JSE, with a great track record of delivering value for shareholders. The company is pushing forward with two major projects (the Gravenhage manganese project and the Glenover phosphate, rare earths and vermiculite project) and needed to raise equity capital to supplement the existing balance sheet.

After initially saying it would raise 5% of its market cap through an accelerated bookbuild (around R430-million), the raise was increased to R680-million based on demand from the market. There were plenty of institutional investors who lined up to grab shares at a 7.2% discount. Although even Afrimat needed to entice investors with a discount, this was a successful capital raise that was completed in just one morning on the JSE — the power of being listed! 

Ascendis also starts with the letter “A” and is also listed on the JSE. That’s where the similarities to Afrimat end, particularly when it comes to track record. Ascendis has been a mess when plotted on a long-term chart and has been through an incredibly tumultuous period of management changes and predatory lenders who use debt as a hook to get their hands on the operational assets.

There’s nothing wrong with this in my view — if you don’t want predatory lenders in your business, don’t break your balance sheet. Ascendis announced a fully underwritten rights offer to raise R101.5-million to pay off debt and recapitalise the business. Calibre Investment Holdings is the underwriter, earning a 2% fee along the way. The rights offer price is above the current share price, suggesting that the group isn’t unhappy about the shares landing in the hands of the underwriter. 

When a company is performing well and supported by the market, a capital raise can take the form of an accelerated bookbuild (like Afrimat) through which institutional investors are invited to apply for shares. When things are rough, a rights offer is the right approach as not many people would’ve lined up for a small helping of Ascendis shares and certainly not at anything close to the traded price. 

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