The Egyptian Chemical Industries Company – KIMA has announced that its Board of Directors has approved the launch of EGP 2bn worth rights issue.
The company’s issued and paid-up capital will increase from EGP 4.4bn to EGP 6.6bn. The issuance of 400m new shares to existing shareholders will be priced at the par value of EGP 5.0/share, plus an issuance fee of EGP 0.05/share.
The company noted that the proceeds would be used to reduce debt and other outstanding dues to the government, including for gas and electricity supplies.
Sources expect the same to be also used to repay the fresh tax liability of EGP 920m that arose a few months back. In addition, the company also noted that it was negotiating with banks to repay part of the outstanding debt by using shares owned in Abu Qir Fertilizers (of which KIMA owns a 3% stake) and Delta Sugar (in which KIMA owns a 6.5% stake).
Naeem Research sees that the announcement of the rights issue by KIMA, while coming as a surprise given that the company has already completed the setup of its new KIMA 2 factory.
At the same time, its urea line is still not fully functional, and the company has been unable to break-even due to the substantial amount of leverage.
Close to 91% of KIMA’s equity is owned by government entities, including the Chemical Industries Holding Company (CIHC), with the issuance price being at an estimated 9% premium to the market.
Naeem expects CIHC to oversubscribe in the event of undersubscription by the minority shareholders. For now, the company awaits the Financial Regulatory Authority’s (FRA) approval to commence procedures for the capital increase. This takes into account minimal clarity over the commencement of normal commercial operations at KIMA 2, and the new tax liability.