Alternative asset manager Ethos Private Equity (EPE), together with independent listed entity Ethos Capital, on Wednesday announced a strategic equity partnership with investment holding company Brait, providing a strong platform to maximise value through the realisation of assets in Brait’s portfolio, while returning capital to shareholders in the medium term.
The partnership will entail EPE’s Fund VII, in conjunction with Ethos Capital, investing R1.35-billion in Brait, through an equity capital raise of up to R5.6-billion, including a R5.25-billion rights issue, to help refinance and restructure existing Brait debt.
Ethos Fund VII will contribute R750-million and Ethos Capital will invest R600-million – to be raised in a separate rights issue – to the overall R1.35-billion capital injection, by taking up part of Titan’s R1-billion portion of the Brait rights issue and an additional R350-million from other Brait shareholders who do not take up their shares in the rights issue or, in the event that all shareholders follow their rights, a specific issue of new Brait shares.
Further, EPE will become the new adviser to the Brait business, replacing the existing Brait advisory contract for a significantly reduced fee structure with effect from the date the Brait rights offer closes, which is expected to be at the end of February 2020.
The new advisory team will comprise a combination of senior EPE executives and certain Brait executives who will join Ethos.
There is strong support for the transaction from Brait and EPE shareholders, as well as Ethos Fund VII investors.
Post the recapitalisation, a new board is intended to be reconstituted and proposed to shareholders for approval, in line with best practice governance.
The strategic partnership with EPE, as part of a recapitalisation process at Brait, puts the company in a strong position for the future and marks the conclusion of an extensive process to materially reduce the debt on its balance sheet and maximise shareholder value.
The recapitalisation comprises a fully committed and underwritten equity capital raise, the refinancing of the group’s revolving credit facility and the launch of a new convertible bond to fund the partial repurchase of the existing £350-million convertible bond maturing in September 2020.
The recapitalisation provides Brait with a significant quantum of new equity, which will be used to reduce debt to a sustainable level and, together with the refinancing of the revolving credit facility for an additional three-year tenor, addresses concerns over Brait’s ability to meet its debt obligations.
For EPE to meet its commitments in the Brait equity raise, Ethos Capital will undertake a renounceable rights offer to raise equity of R750-million. Ethos Capital has received commitments from existing Ethos Capital shareholders and other investors to fully fund its R600-million portion of the Brait equity raise.
The Ethos Capital rights offer is expected to begin late in January 2020 and be concluded in February 2020.
BRAIT RECAPITALISATION
Brait has approved a comprehensive recapitalisation plan comprising a fully underwritten equity capital raise, a refinancing of the group’s revolving credit facility and the intended launch of a new convertible bond to raise, in aggregate, between R14.4-billion and R14.7-billion, providing a holistic solution for Brait.
As part of the plan, Brait will reduce its net debt by up to R5.3-billion and extend the maturity of its remaining debt.
Brait will move away from its existing strategy of being a long-term investment holding company.
It plans to adopt a new strategy that will focus on maximising value through the realisation of its existing assets in the portfolio over the next five years and returning capital to shareholders.
Part of the change in strategic direction is the introduction of the new strategic equity partner, following the conclusion of the equity capital raise at the end of February 2020.
With effect from the closing of the equity capital raise, Brait’s board will terminate the investment advisory agreement with its current corporate advisers and enter into a new advisory agreement with EPE.
The advisory costs and Brait’s other operating costs will be substantially reduced.
The CEO of Brait’s corporate adviser, John Gnodde, in agreement with the board, has decided to step aside at the conclusion of the recapitalisation in February 2020.