The Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) (AKA Soul Patts) share price is currently up 0.5% after the company released a profit update about FY24 and also informed the market it was carrying out some financing activities.
The investment house made savvy moved during the COVID-19 era of rock-bottom interest rates by taking on debt for the first time in its 120-year existence. It's now looking to extend its use of external funding to grow the business.
Image source: Getty Images
Financing activity
Soul Patts announced it's repurchasing up to 100% of the outstanding $225 million senior unsecured convertible notes, which are due in 2026.
It's going to carry out a placement (capital raising) of up to $225 million to fund the repurchase at an issue price of $34.23 per ordinary Soul Patts share (a 0% discount to the last closing price of Soul Patts shares). It has signed commitment letters with existing shareholders who have already committed to $225 million.
The investment house is also launching an offer of $450 million of senior unsecured convertible notes, which are due in 2030, which will be listed in Singapore. Soul Patts said the new notes provide longer-term, low-cost debt to further strengthen its capital position for deployment into new investment opportunities.
Soul Patts said it has the right to choose to cash settle the new notes, if converted. The new notes have a coupon (interest) rate of between 2.375% to 2.875% per annum, payable on a semi-annual basis.
The conversion premium for these notes is 25% to 30% above the reference share price of $34.23, which is the placement price. Therefore, the conversion price will be between $42.79 to $44.50.
The new notes settlement and issue, placement settlement of new Soul Patts shares, and repurchase of the old notes will occur on 29 August 2024.
As part of this announcement, the company revealed insight into its FY24 performance – its financial year finished on 31 July 2024, so it isn't due to report its full FY24 result for a few weeks yet.
FY24 result
Soul Patts focuses on two performance metrics – how much its portfolio is worth and how much cash flow (such as dividends) its portfolio pays. These are the same things that most investors focus on with their own portfolios.
The company reported that its pre-tax net asset value (NAV) at 31 July 2024 is expected to be between $11.6 billion and $12 billion. That represents a year-over-year increase of 7.4% to 11.1%. That's the value of all Soul Patts' assets minus all liabilities, excluding any capital gains tax payable upon the sale of its assets.
FY24 net cash flow from investments is expected to be between $463 million and $472 million, representing a year-over-year increase of between 9.1% to 11.2%. These are the cash flows generated by its investment portfolio after deducting corporate costs, income tax and non-regular cash flows. The board determines Soul Patts' dividend based on the net cash flow from investments.
Management commentary
The Soul Patts managing director and CEO Todd Barlow said:
Following the success of our first convertible bond in 2021 where we have benefited from low-cost debt funding (3.5 years at 0.625% p.a.), we are pleased to be accessing this market again. We have received strong support from equity investors for the placement to fund the repurchase.
Since the issue of the 2021 convertible bond, our NAV per share (adding back dividends) has increased 15% p.a.
We continue to experience high levels of deal flow and executed $4.7 billion of transactions in FY24. Soul Patts has established itself as a capital partner of choice and we are seeing significant growth in our private equity and credit portfolios.
Following this transaction, we will be in a net cash position with significant flexibility to further accelerate Soul Patts' growth.
Soul Patts share price snapshot
Since the start of 2024, the Soul Patts share price has risen by more than 4%.
