Former market darling Retail Food Group Limited (ASX: RFG) is in the process of pitching a $160 million-plus equity raising to various fund managers. What does this mean for the investors?
The video below explains what a capital raising is:
Retail Food Group is a master franchisor of various fast food chains including Gloria Jean’s, Brumby’s, Donut King, Michel’s Patisserie and Crust. It is also a major roaster and supplier of coffee products.
Capital Raising Push
It is understood RFG management have been meeting with a number of institutional investors in order to gauge the likely support for what would be a huge re-capitalisation of the company.
RFG is looking to raise at least $160 million in order to pay down debt and to provide funds for plans to reinvigorate its core retail food franchise and coffee operations. Given the current market cap is just $32 million, the company is essentially looking to raise 5 times the market value of all its shares on issue.
According to an article on the AFR
website earlier today, stockbrokers Shaw and Partners and Petra Capital are involved as lead managers.
Tread Carefully
The one time popular ASX share tip has had a spectacular fall from grace with its share price plummeting more than 90% from its highs just two short years ago. Weighed down by poor governance and a mountain of debt, the company has been exploring its options in order to stay afloat.
If I were a shareholder, I would be hoping for the company to sell off parts of the business and use the proceeds to clear some of the outstanding debt which stood at approximately $270 million as at 30 June 2019.
Investors like the idea of picking the big turnaround story but I’d be very careful not to throw good money after bad. Most investors who had owned Retail Food shares have probably already cut their losses and moved on. I’d suggest they keep it that way.
There is a chance the share price will be trading higher one year from now but there is also a significant chance that the company will collapse under the weight of its toxic past and current financial burden.
At the time of publishing, Luke has no financial interest in any companies mentioned.
