Market punishes Aveng for bond issue
Carli Lourens
Trade and Industry Editor
THE share price of SA’s largest construction group, Aveng, fell more than 9% yesterday after the company announced it had issued a R1bn seven-year convertible bond.
The drop came despite signals of a turnaround, with the group also announcing it expected earnings for the half year to December and for the full year to June to be between 40% and 60% higher than the respective corresponding periods.
Aveng’s profits were pummelled by the strong rand and big losses on three roads, among other factors, last year.
Analysts said yesterday’s share price drop was spurred by investor fears that the bond, redeemable in Aveng shares, would dilute shares.
According to Reuters’ calculations, the group will have to issue about 65,5-million shares if the bond is fully redeemed on conversion in 2012.
Aveng CEO Carl Grim said the bond issue provided long-term funding certainty and lowered the group’s average cost of capital.
Aveng would use proceeds of the offering primarily to restructure its existing short-term South African bank debt, allowing it to benefit from attractive financing opportunities currently available in the international convertible bond market, it said.
“This subscription by international investors in a seven-year, fixed-interest rate, billion-rand facility is, to the best of my knowledge, a first for a South African corporate,” said Grim.
The bonds will carry a coupon of 6,125% a year and the conversion price will be R15,27 — a premium of 22% to the closing price of Aveng’s ordinary shares on the JSE Securities Exchange SA on Monday.
The bonds will be convertible, initially, into a cash amount calculated with reference to the Aveng share price, and subsequently into fully-paid ordinary shares of Aveng.
Aveng is to seek shareholder approval, at its October AGM, to issue shares on conversion of the bonds.
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