Paint manufacturer Crown Paints Plc plans a pre-emptive rights issue that will see its shareholders participate in the acquisition of 71,181,000 out of the 92,526,000 newly created shares to bring the Group’s indebtedness to a more sustainable level.
In addition, to take advantage of its long-term growth opportunities and gain market share in the East African region.
“While the Company’s business outlook in Kenya is secure, its subsidiaries (Crown Paints Tanzania Limited, Regal Paints Uganda Limited and Crown Paints Rwanda Limited) performance for over the last few years has remained depressed due to the adverse competitive environment which has led to the Company supporting the subsidiaries financially,” said Conrad Nyukuri, Company Secretary on behalf of the Board.
For instance, according to the company’s annual report for the year ended December 2019, it wrote off KSh278.1 million in Regal Paints Uganda and KSh374.9 million in Crown Paints Tanzania.
“Regal Paints Uganda Limited, Crown Paints Rwanda Limited and Crown Paints Tanzania Limited have a history of losses. Further, the subsidiaries rely on the parent company for the provision of working capital and their ability to continue as a going concern depends on the continued support they receive from the parent company,” the company says in the report.
The rights issue involves 71,181,000 new shares which will be done within 5 years from 31st October 2020 subject to the approval of the shareholders of the Company and the Capital Markets Authority.
According to the Board, if approved, the rights issue would enable the Company to secure its balance sheet strength to give it a competitive advantage in a competitive market.
Further, it will also be able to invest in its subsidiaries which have hitherto made losses, diversify its product lines to meet changing customer needs, and enable the firm to deleverage and reduce reliance on short-term debt.
“The Board unanimously believes that the Rights Issue is necessary and will put the Group in the best possible position to deliver this strategy and returns to shareholders over the long-term,” added Nyukuri on behalf of the Board.
What is a Preemptive rights issue?
Preemptive rights are a contractual clause giving a shareholder the right to buy additional shares in any future issue of the Company’s ordinary shares before opening them up to the general public.