Grit is trying to raise $215m to reduce debt and buy a majority stake in Gateway Real Estate Africa. “If we have to drop that number because of market conditions we can,” Knight says from Kenya, adding the final amount raised might be around $180m.
About half of shareholders by value may not take up their rights to buy new shares, Knight says. Shareholders including Botswana Development Corporation, Eskom, M&G and Ruffer have to date provided commitments for 68% of the total fundraise. The company aims to close the fundraising at the end of next week.
Shares in Grit, which trade on the London stock market, have been trading at a discount to net asset value (NAV) of around 50% versus about 10% prior to Covid-19. The company’s hospitality and retail holdings have been hit hard by the pandemic, leading to an asset writedown of $100m and the omission of the last final dividend. The group’s loan to value (LTV) ratio has risen from 43.9% to 53.1%, close to the maximum 55% specified in its debt covenants.
“We went into the cycle too highly geared,” Knight says. “We aim to tackle the balance sheet and position for growth. Balance sheet strength is key.”
- Part of the proceeds of the fundraising will be used to increase Grit’s stake in Gateway Real Estate to a majority 51%. Gateway currently has a net asset value of $192m which will increase to $280m as its development projects reach completion, Knight says.
- Shareholders in Gateway are willing to be paid with Grit stock, Knight adds.
The LTV ratio after the operation will fall to a much more comfortable level around 33%, well below the 45% level which would allow dividends to restart.
- Grit plans to resume dividend payments of between 5 and 6 US cents per year, Knight says. That would be a yield of about 9.6% to the shares now being sold.
- Knight, CFO Leon van de Moortele and board member Sam Jonah have shown their confidence in Grit’s prospects by buying the company’s stock.
The company is still aiming to raise the full $215m. It will use part of the proceeds to execute a strategic shift away from hospitality and retail and towards infrastructure, Knight says. Gateway has a range of data centre, healthcare and light industrial assets, as well as embassy accommodation. Its holdings are spread across Ghana, Senegal, Nigeria, Ethiopia, Kenya and Zambia.
The hospitality and retail share of Grit’s assets will fall from around 47% to about 32% after the acquisition. Grit expects its discount to NAV to be cut to around 28%. The company is also planning to dispose of some assets to shore up its balance sheet. The AnfaPlace shopping centre in Casablanca is currently under offer and is likely to raise $80m-$85m, Knight says.
- Grit has a total disposals target of $150m which it aims to complete by the end of 2023.
Grit is confident it can kill two birds with one stone by fixing its balance sheet and buying into infrastructure growth through Gateway.
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