Crown Paints Plc will use the Sh711.80 million being raised via the rights issue to salvage its subsidiaries in Uganda, Rwanda and Tanzania, which the paint and coating firm revealed are struggling with debt.
Just a year after the company wrote off Sh653 million it had invested in its subsidiaries in Uganda and Tanzania, the Nairobi Security Exchange (NSE) listed firm has now turned to its shareholders for more capital.
The company did write off Sh374 million for Crown Paints Tanzania and Sh278 million for Regal Paints, its Uganda subsidiary. The rights issue will see shareholders of the company allowed to purchase additional shares.
On May 7, the Capital Markets Authority (CMA) approved the company's request to raise Sh711.81 million by issuing 71,181,000 new ordinary shares.
Then, CMA noted that the money was meant to bring financial flexibility to the company and assist it in navigating the tough business environment brought about by the Covid-19 pandemic.
"The rights issue is to bring the company’s indebtedness to a more sustainable level and to position it to take advantage of its long-term growth opportunities and gain market share in the East African Region,” said Crown Paints in a cautionary statement signed by Company Secretary Conrad Nyukuri.
Mr Nyukuri said while the company’s parent firm in Kenya is sound, the performance of its subsidiaries – Crown Paints Tanzania Ltd, Regal Paints Uganda, and Crown Paints Rwanda Ltd) has over the past few years remained depressed.
“(This is) due to the adverse competitive environment that has led to the company supporting the subsidiaries financially,” he said.
The firm, in a statement, also warned that despite the enhanced regional integration in the East African Community, there remained challenges in the respective paint makers' markets, thereby negatively impacting the financial performance of the subsidiaries.
The notice added that the company is in contact with the NSE regarding obtaining approval and once issued, it will be promptly uploaded on its website.
“The shareholders of the company and the public are advised to exercise caution when dealing in the shares of the firm,” it added.
Crown Paints Plc opened a depot in Tanzania in 2012 before entering the market in 2014. The plan, as revealed by the paint maker then was to pump in Sh360 million targeting a 50 per cent market share in the country for premium paint.
In Rwanda, the company invested Sh250 million on its entry into the market in February 2015.
The firm intends to raise Sh711.810 million (before expenses) by way of issuing 71,181,000 new ordinary shares at a par value of Sh5 each and a rights issue price of Sh10 per new ordinary share.
As of May 25, the company’s share price at NSE hit Sh40.