FOSRICH is set to consider raising new equity capital at its board meeting set for next Thursday.
FosRich is a lighting and electrical company which also manufactures PVC (polyvinyl chloride) pipes and fittings that it exports across the Caribbean. The company also repairs pole- and pad-mounted transformers operated by the Jamaica Public Service Company Limited (JPS) under a four-year agreement signed in July 2020. JPS has more than 40,000 transformers in use across its distribution network.
With big ambitions to grow the company’s top line by 80 per cent in 2022, FosRich’s board will deliberate whether the company will raise equity via a rights issue or additional public offering (APO). The deliberations will also consider an increase in the authorised share capital and use of a stock split to increase the number of shares in circulation. All of these considerations will have to be approved by shareholders at the annual general meeting (AGM) through special resolutions. FosRich tends to host its AGMs in August, but might hold it earlier based on its desire for the capital.
“We have opportunities that we don’t want to pass us and so we are increasing the share capital to the maximum available to the JSE [Jamaica Stock Exchange] Junior Market companies,” said co-founder and managing director of FosRich Cecil Foster in an email with the Jamaica Observer.
Though Foster declined to add any further details until the board meeting and publication of the company’s 2021 annual report, he informed the Caribbean Business Report that the company had set high growth targets for 2022. This included the second phase of a 134,000-square-foot commercial complex being developed on Molynes Road, St Andrew, plus continued investment in associated company Blue Emerald Limited which operates two 60,000-square-foot factories in Hayes, Clarendon. The commercial complex targets business processing outsourcing companies, financial institutions and food spaces for rental while the Blue Emerald facility is for the manufacturing and repair segments of the company.
Junior Market companies on the JSE currently have a minimum share capital limit of $50 million and maximum ceiling of $500 million. FosRich’s issued share capital is currently $369.62 million , thout accounting for treasury shares, spread out over 502,275,555 outstanding ordinary shares. This would mean FosRich would have $130.38 million in space to raise additional equity after accounting for transaction fees. It would also allow the company to maintain its tax remission afforded to it over the ten years from its listing date.
A rights issue would allocate new shares relative to the number of outstanding shares held at a record date as determined by the company. For example, Key Insurance’s December 2020 renounceable rights issue allocated 259 new shares for every 500 shares held as at December 10. A renounceable rights issue typically allows existing shareholders to give up their rights, wholly or in part, to other shareholders or members of the public. A non-renounceable rights issue typically means that rights can only be renounced to other existing shareholders. Key Insurance successfully raised $668.02 million in its rights issue.
An APO is a secondary offering which is open to everyone, including shareholders and members of the public. Though typically done solely by JSE Main Market companies, Derrimon Trading became the first Junior Market company to execute an APO in December 2020 during which it garnered $4.22 billion. Though Derrimon Trading remained on the junior market due to its subsidiary, it no longer benefited from the 50 per cent tax remission afforded to companies listed on that index as noted from its 2021 audited finacials. Chief financial officer of Derrimon Trading, Ian Kelly serves as an independent director on FosRich’s board and chairs the audit, compliance and risk committee.
FosRich had a record-breaking year in 2021, as revenue increased by 24 per cent to $2.35 billion, while its net profit catapulted by 59 per cent to $199.31 million. This was supported by 23 per cent growth in total assets to $3.77 billion which was funded by a 26 per cent rise in total liabilities to $2.75 billion. Shareholders’ equity closed the year at $1.02 billion that included a $51.73-million dividend paid on December 6.
Though the assets have risen quite quickly this has been funded by debt which totalled $1.61 billion, with $181.41 million listed as current at the end of 2021. As a result, the debt-to-equity or gearing ratio stands at 1.59 times. Thus, a rights issue would assist the company in supporting immediate capital expenditure. An APO would give it room to reduce its debt burden. FosRich’s top 10 shareholders control 92.4 per cent of the issued shares, with Foster and his wife Marion Foster, the company’s chairman, owning 40 per cent each. Derrimon Trading’s gearing ratio declined from 71 to 27 per cent after the APO, with total debt now at $2.04 billion at the end of 2021.
FosRich’s stock price has increased by 32 per cent since the start of April and by 157 per cent to $23.26 since 2022 began. The stock halted up 19 per cent to $27 at 10:20 am on Wednesday following the announcement, with the stock hitting an all-time high of $27.65 during the day. At the end of trading, only eight sell orders remained for 177,904 shares valued at $6,933,129.90. FosRich ended March 2021 at $5.12 and closed 2021 as the best-performing junior market stock, up 120.19 per cent.