One of Zambia’s largest agri-businesses is receiving up to US$65mln of investment from a development finance group owned by the UK government.
The investment gives CDC a direct holding of 17.5% of Zambeef and voting rights totalling almost 35% over the firm’s equity.
The proceeds will be used to refinance US$38mln of debt and to buy out the shares it doesn’t own in joint ventures with a company called RCL.
Chairman Jacob Mwanza said: "I am delighted that CDC is becoming a supportive long-term shareholder in Zambeef.
“We have a longstanding relationship with them and they have a long history of making successful investments in our country, including plenty within the agricultural and food sectors.”
House broker finnCap described the deal as “transformational” and believes the deal could be the trigger that allows the shares to re-rate and achieve the broker’s (undiluted) target price of 15p (22p once the latest share issue is taken into account).
The shares had made a good start, rising 45% to 11.6p by the middle of the morning trading session.
“Zambeef was facing the exercise of a put option from RCL to buy back its share of ZamChick and ZamHatch, a US$23.4mln problem,” finnCap explained.
“With an arguably already over-leveraged balance sheet raising more debt was not desirable, there was inadequate time to arrange an orderly sale of assets while paying RCL in Zambeef shares could have resulted in at least 50% dilution to existing shareholders,” the broker continued.
The company has found an elegant way out and brought on board “a high-quality, long-term investor” that fully understands the Zambian operating environment, the broker said.
Forecasts for the year to the end of September 2017 have been bumped up by the broker, to take into account substantially reduced interest costs and the elimination of minority charges.
The house broker’s profit before tax forecast for next year was whacked up 45% to £14.3mln.
“Debt to Equity falls from 60% to 23% while free cash flow increases by c100%. Critically, this will enable Zambeef to proceed with confidence in growing its core growth cold-chain food products and retail businesses,” finnCap’s Raymond Greaves said.