Tuesday 23 May 2017 by FIIG Research ripples_on_water Company updates

G8 announces $100m placement to offset CIPI default

G8 has released a statement confirming the end of it voluntary suspension. As G8 previously informed the market, it had terminated its agreement with CFCG Investment Partners (CIPI) after it did not meet its commitment to invest a second and final tranche in a share placement.

Today, the company announced an approximately $100m fully underwritten institutional placement to replace the CIPI funding. G8 has also reached an agreement with CIPI to subscribe to a further $31.8m in shares.

The combination of the institutional placement and the CIPI Placement (both tranche 1 revised tranche 2) results in funds raised of approximately $196m at a weighted average price of between $3.44 to $3.50. The previous agreement with CIPI was to raise approximately $212.8m at an issue price of $3.88 per share.

Given the circumstances, this is a good outcome for bondholders with the required equity funding eventually being committed. However this is not necessarily positive to shareholders given the discount given to achieve the $100m placement.

G8 reconfirmed its intention to reduced debt by paying out its $50m BBSW +3.9% March 2018 bond and repaying $40m of its overdraft.

On a pro forma basis given the revised placement G8’s net debt/EBITDA ratio will reduce from 2.2x to 1.1x (as at 31 December 2016). This however will rise as the group uses cash to fund planned acquisitions. G8 has previously given a leverage target of around 2x.

Agreement reached with CIPI

Following the default and termination of the original CIPI agreement, G8 and CIPI have agreed to the following:

  • CIPI has committed to subscribe for 8.2m shares at the original investment a price of $3.88 per share, representing $31.8m. The subscription price represents between a 21.3% to 25.2% premium to the institutional placement price
  • If CIPI further defaults on its obligations and commitments to G8 it has irrevocably authorised and directed, if demanded by G8, the sale of the existing tranche 1 shares to satisfy the settlement of the revised tranche 2 placement
  • If CIPI fulfils its obligations, G8 has agreed to release it from all liability in relation to the original default

Trading update

G8 forecasts underlying EBIT for FY17 of ‘around mid to high $170m’. This compares favourably to our forecasts of $165m EBIT for FY17.