Elders Ltd (ASX: ELD) saw its share price soar today, after the company announced that it was raising capital to buy back its redeemable preference shares (ELDPA).
In mid-afternoon trading, Elders share price was up 13.7% at $4.13.
The company is raising $102.4 million via an institutional placement for $25 million and a 1 for non-renounceable rights offer to raise around $77.4 million. The new shares will be issued at $3.40 – a 7.8% discount to the average price of Elder's shares over the past month.
Once the funds have been raised, the company will then offer to buy back on market all the ELDPA hybrids at $95 each. The company says that the two largest hybrid holders (and their associates) – representing around 26.5% of all Hybrids, had agreed to sell their 293,567 hybrids to Elders.
The biggest factor in removing the hybrids is that Elders will then be in a position to resume paying dividends at the end of the 2017 financial year. The company also says that it has unutilised franking credits of $21.6 million, which will allow the company to pay fully franked dividends in the short-term. The company is targeting a payout ratio of up to 35% of underlying net profit after tax.
Elders also has a substantial carried forward tax loss balance of $247 million, meaning the company is unlikely to have to pay any tax to the ATO for many years.
It's another step in the huge turnaround of the rural conglomerate Elders.
From 2008 through to 2013, Elders struggled to survive, posting huge losses most years and divesting non-core assets to pay down hug debt levels. Since the 2013 financial year, the company has focused on agribusiness, cutting debt further, strengthening the balance sheet and simplifying the business.
Elders now focuses on financial and agency services, retail products, feed & processing services and live export services. That includes selling farm supplies, acting as an agent to sell agricultural products, providing loans and insurance, and short and long haul exports.
Foolish takeaway
The repurchase of the hybrids is a sensible option – particularly as the interest rate on the hybrids is due to step up 2.5% from 30 June 2016. The company also can't pay dividends on ordinary shares until it pays an amount equal to 12 months of back distributions to hybrid holders.
