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Cromwell Group is launching a security purchase plan

Earlier today, Cromwell Group (ASX: CMW) announced that it has launched a security purchase plan.

The aim of the purchase plan is to raise up to $30 million to allow eligible securityholders the opportunity to purchase up to $15,000 worth of new securities without paying any brokerage or transaction costs.

Cromwell CEO Paul Weightman said “We are committed to ensuring eligible securityholders are given the opportunity to participate in the transformation of our global funds platform on similar terms to SingHaiyi and Haiyi Holdings”.

The new securities will be issued at a price of $0.947, which represents a 4.9% discount to the five-day average volume weighted average price.

The proceeds of this purchase plan will be used to repay short term debt and for general corporate purposes including investment in value adding opportunities in the portfolio and potential acquisition opportunities.

However, Cromwell also announced today that it would be extending its on-market buy-back as part of its ongoing capital management programme. The buy-back period will now continue until 18 January 2019.

Cromwell said that the buy-back has been extended because it remains important to Cromwell to maintain the maximum amount of flexibility with regard to its capital management strategies to enhance value for stapled securityholders. This will be primarily funded from its cash reserves and may also use the proceeds of any assets sales to fund the buy-back. Cromwell will not borrow any funds to facilitate the buy-back.

It seems like an odd move to announce that it will be both buying-back and issuing new securities on the same day. However, I’m sure management have figured out the best strategy for the business and will look to capitalise on Cromwell’s fluctuating share price.

Foolish takeaway

Cromwell is currently trading with a trailing distribution yield of 8.49%, which is quite attractive in this era of low interest rates. I’m not a buyer of Cromwell shares at the current price, but securityholders may like to receive the discount on the security purchase plan.

This share could be a much better choice for income-seekers over the next few years.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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