Synthomer announces £276m rights issue for capital reorganisation and debt reduction
Global specialty chemical producer Synthomer plc announced plans to raise approximately £276 million through a rights issue. The move aims to reduce the group’s leverage and strengthen its focus on specialty solutions. The funds will initially be used to lower borrowings under the company’s Revolving Credit Facility, expected to result in a pro forma reduction in the net debt-to-EBITDA ratio from 5.5x to 3.8x as of June 30, 2023.
Capital Reorganisation and Leverage Reduction
In conjunction with the rights issue, Synthomer is planning a capital reorganisation that includes a sub-division and share consolidation. The capital reorganisation aims to provide stronger financial foundations for strategic delivery and long-term value creation. “By increasing covenant headroom, the Rights Issue will allow greater focus on strategic delivery and long-term value creation,” the company stated. The rights issue will also allow Synthomer to navigate downside risks from near-term macroeconomic uncertainties.
Recent Challenges and Management Actions
Over the last 18 months, Synthomer faced a challenging market, witnessing a temporary weakness in demand and increased raw material and energy costs. To address this, the company executed various management actions, including debt refinancing and cost-saving measures. A recent divestment of non-core businesses generated $269 million in net proceeds, further helping to manage debt.
Strategic Focus and Future Outlook
Synthomer’s new management team, which was introduced at the Capital Markets Day in October 2022, outlined a “Focus, Strengthen, Grow” strategy to increase the specialty weighting of its portfolio. “The Board believes that the medium-term earnings power of the Group is more than double current levels,” the company mentioned, highlighting goals like mid-single-digit revenue growth and EBITDA margins above 15%.
Strong Support from Major Shareholder
Kuala Lumpur Kepong Berhad Group (KLK), the company’s largest shareholder holding approximately 26.9% of the total voting rights, has irrevocably committed to fully participating in the rights issue. This significant backing adds an extra layer of stability and assurance to Synthomer’s ambitious plans.
The proposed rights issue and capital reorganisation mark a pivotal moment for Synthomer as it seeks to navigate market challenges and position itself for future growth in the specialty chemicals sector.