For many companies elsewhere in the world, access to funding has become much tougher than in the past. How challenging is this for local companies?
As usual when banks are involved, it depends on how much they need the money. As long as balance sheets are conservatively structured and cash flows can service the debt, they are less likely to have problems finding capital.
Data compiled by I-Net Bridge, showing the financial positions and interest cover ratios of listed industrial companies, show most are conservatively geared, with little sign of financial stress.
Only a small minority (mostly small companies) had interest and finance lease cover of less than two at their last year-ends. This shows how many times debt-servicing costs are covered by operating profit. A cover of two is acceptable, but three or four is better when rates are high and growth is slowing.
For now, most should cope comfortably with their borrowing costs. That could change - in a downturn, revenue growth slows, cash flow shrinks, working capital management becomes harder and debt often rises.
Finding capital can get much tougher when balance sheets are stressed and companies are forced to recapitalise. It may require issues of new permanent capital or equity. And, as shown by four companies that have taken this route in recent months - Super Group, Seardel, Sappi and Metorex - share prices can come under heavy pressure.
Super Group, involved in the transportation sector, said in July it wanted to raise up to R750m through a rights offer. Shareholders subscribed for only 67% of the offer, which raised R510m. The issue strengthened the balance sheet but the share now trades at 190c, more than 40% below the rights price.
Seardel, the apparel and textiles group, showed how quickly a company's financial position can weaken when its operational performance deteriorates.
At its June year-end, Seardel's debt:equity ratio looked reasonable at 40%, except it made an R85m operating loss compared with an R81m profit in 2007.
Shareholders HCI and founder Aaron Searll backed a R300m rights issue, priced at 50c/share - well below the market prices of above 400c before the issue was announced. Shareholders (other than HCI) applied for only 18,8% of the rights shares. The share now trades at only 49c.
Sappi's €450m equity issue was different as it was held to finance expansion and enable the group to bring about industry consolidation in Europe's coated fine paper sector.
The rights offer was priced at a large discount of 65% to the market price. However, the offer was fully subscribed for, and some shareholders applied for more. When the offer closed last week the share traded at R41, slightly higher than the theoretical value of the existing shares plus the nil paid letters.
CE Ralph Boëttger says the group opted for a rights issue because in present market conditions it was unable to obtain debt funding for the full acquisition price. But the equity issue did make the process more complicated.
Metorex, a diversified miner, is involved in a R3bn capital and debt restructuring. CE Charles Needham says the refunding was an "incredible challenge" given market conditions.
The funding is aimed mainly at ensuring development of the large Ruashi Copper Project in the Democratic Republic of Congo can continue, but the company was severely stressed.
Analysts describe the refinancing terms as "extremely punitive". The share price fell to R2, down 47% since the plan was announced on November 27. Last week the group announced a restructuring of its board and management, with plans for a new CE.
Ranking the Analysts 2009
