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ZIMBABWE Stock Exchange listed Seed Co Limited will raise enough funds to retire at least 17 percent of its debt from the sale of part of its stake to US seed firm Vilmorin and Cie, financial analysts IH Securities have said. Zimbabwe’s foremost seed producer has agreed with the US firm for the acquisition of 25 percent of its stake to raise funds to support operations and retire its debt.
“It is our view that the increase in sales expected in the 2014 financial year, along with the unlocking of cash resources invested in inventory will result in Seed Co reducing some of its debt next year.”
With no equity investment, IH Securities estimate a 17,1 percent decline in Seed Co’s debt to $38,8 million. The impact of the reduction in debt levels on finance costs will be complemented by a reduction in Seed Co’s borrowing costs from 16,3 percent to 12 percent in 2014.
“Tranche I is expected to reduce Seed Co’s debt by $8,78m by the end of full year in 2014 while Tranche II is expected to result in a $12,54 million debt reduction by the end of the full year in 2015. Accordingly, we expect a significant reduction in finance costs from full year in 2015 onwards,” said IH Securities.
The two-tier transaction will see Seed Co parent firm AICO Africa selling 15 percent of its majority to Vilmorin in the first transaction and another 10 percent batch in the second transaction.
The placement shares in the first transaction will see Seed Co issuing 10 273 048 ordinary shares to Vilmorin at a price of $0,9925 per share, raising equity worth $10,196 million. Simultaneously, as part of a call option share placement, AICO will sell a portion of its Seed Co ordinary shares, being 20 546 096 shares, at $0,9925 per share, to realise $20,39 million. Provided the call option placement is exercised, Seed Co will have issued a total of 37 662 481 new ordinary shares to Vilmorin and Cie, bringing in a total capital injection of $40,11 million.
Of the $13 million raised from sale of shares under the first transaction $8,79 million will be used for clearing debt while $4 million will be allocated towards capital expenditure.
The bulk of funds raised from tranche II placement proceeds, net of a 10 percent first transaction deposit, will be used for debt retirement and capex.
The total capex allocation will be channelled towards $6 million farm acquisition for own production in Zambia, $6 million for the construction of a factory, warehouse and offices in Malawi, as Seed Co Malawi is renting premises at a substantial cost to company of $400 000 per annum. The balance will be used for expansion into Ethiopia and West Africa. Vilmori and Cie and Seed Co will also enter into a series of collaborative agreements for research and development, germplasm exchange, technical assistance and technology licence transfer.
Online Reporter