17/06/2015 00:32 AST
A scheme for the repurchase of 423,141,678 Mandatory Convertible Bonds (MCBs) of OMR43,160,451 issued in 2012 will be discussed during the upcoming Extraordinary General Meeting of Renaissance Services.
In a disclosure filed on Tuesday, the board of directors of the company invited all shareholders to attend the meeting, which will be held on Monday, July 6, at 3 pm at the Meeting Hall of the Capital Market Authority (CMA).
According to the statement, the approval of the scheme is subject to the availability of financing.
Another objective of the meeting is to consider and approve the issuance of Perpetual Cumulative Capital Certificates by the company’s wholly owned overseas subsidiary, with a coupon to be determined at the time of issue based on market conditions to raise up to $200,000,000 through conventional or Sukuk financing.
Renaissance Services had issued 423,141,678 MCBs at an issue price of OMR0.102, amounting to OMR43.1 million MCBs in July 2012 to its shareholders on a rights basis.
The purpose of the issuance was to provide capital for financing the investment required for the company’s growth and to strengthen the company’s balance sheet.
The MCBs offer investors an annual cash coupon of 3.75 per cent and shares in the company upon conversion, which aggregate to an internal rate of return of 16.9 per cent for MCB holders.
The conversion of MCBs is scheduled to be carried out in three equal tranches commencing from July 2015, with the remaining two tranches in July 2016 and July 2017.
The company proposes to undertake the scheme to safeguard the interests of all stakeholders namely the MCB holders and shareholders, particularly those small shareholders of the company who did not subscribe for MCBs and hence would be most affected by a significant dilution.
The company’s current share price of OMR0.322 (June 4, 2015) is lower by 49 per cent than the company's net book value of OMR0.630 as of December 31, 2014.
The main reasons for the lower share price are due to various extraneous events such as poor market sentiment, depressed oil prices, general state of the global economy and as a consequence, pressure on current trading results.
If market sentiment and the company share price do not improve substantially at the time of conversion, then a large quantum of shares will be issued on conversion of MCBs, resulting in significant capital dilution.
This will negatively impact shareholders particularly small investors in Renaissance who did not subscribe for MCBs.
The company says that the proposed scheme will be positive for each stakeholder and the company.
The company along with its financial advisors have evaluated financing options to repurchase MCBs within the parameters of applicable law.
One of the options is the issuance of Perpetual Cumulative Capital Certificates by a wholly owned overseas subsidiary of the company to major local and regional institutional investors.
The company intends to raise up to $200,000,000 by way of issuance of Perpetual Certificates. The certificates could be issued, either in conventional or Sukuk form, which will be determined at a later date based on the feedback of investors.
Following evaluation of the financing options, the company says it considers Perpetual Certificates to be the best form of financing to replace MCBs due to several reasons.
The company is at an advanced stage of raising finance through Perpetual Certificates and expects financial closure of the transaction by July 2015.
In the event that the transaction is not finalised on terms acceptable to the company or for any other market reasons, then the company may opt not to proceed with any repurchases of the MCBs.
Times of Oman
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