In summary, the recapitalisation aims to restore balance sheet stability by
- reducing the group’s unsustainably high debt levels
- addressing the need for short-term funding
- maximising the long-term strategic value of the business.
Did the lenders dictate that the company initiate the recapitalisation or was this undertaken by mutual agreement?
This was dictated by Blantyre and L1 Health. However, the board and management of Ascendis were supportive and receptive to the recapitalisation owing to the company’s rising debt levels, with the repayment due by 31 December 2021, and considering the lack of progress that had been made to date on the lender-driven asset disposal process.
In addition to Blantyre and L1 Health, who collectively hold over 75% of the debt, there are two other members in the consortium. Unfortunately, we are not able to disclose the identity of the other lenders due to client confidentiality agreements.
The timeline is normal for a transaction of this nature and complexity. The process is particularly challenging owing to the geographic spread of the group’s assets across various locations in Europe and South Africa. The group has appointed a professional team to advise on the strategic, commercial, legal, regulatory, tax and exchange control aspects of the recapitalisation. This includes time-consuming processes such as the valuation of all of the disposal assets by the independent expert and the preparation by management of the historical financial information for the disposal assets and the pro forma financial effects of the transaction for the company (both of which must be included in the circular) and the review thereof by the group’s reporting accountants and auditor.
Can you confirm that various parties have expressed interest in acquiring certain of the company’s South African assets?
Yes, we can confirm that there has been consistent interest from various parties in acquiring the South African assets, but the details of these expressions of interest are confidential.
PSG Capital has been appointed as the independent expert to provide a fair and reasonable opinion. The circular to shareholders will include a letter from PSG to the board of Ascendis outlining their opinion as to a fair value range for the disposal assets.
Was a rights offer considered as part of the recapitalisation and, if so, why is the company not going ahead with any capital raising?
Owing to the low share price, a rights issue would have a significant dilutionary impact on shareholders. A further key consideration was that Ascendis has over 7 000 shareholders who own less than 1 000 shares and it would have been highly unlikely that many of these retail shareholders would have been able to participate in a rights issue. Therefore, in the early stages of the negotiations on the recapitalisation it was agreed not to pursue a rights issue.
Retail investors account for approximately 35% of the company’s shares.
Management is committed to engaging with all shareholders and the CEO has engaged with this lobby group as they represent the interests of an increasing number of retail investors. Management would welcome engagement with other lobby groups too. Retail investors account for approximately 35% of Ascendis Health’s total shareholding.
Yes, shareholders are entitled to view the share register and may request to receive a copy from the company secretary.
Yes, the MOI is available to shareholders and can be accessed on the group’s website at the following link: https://ascendishealth.com/about-us/governance/memorandum-of-incorporation/
No, the minutes of board proceedings are privileged and confidential, and shareholders have no legal right to these documents.
Based on the financial results to December 2020, the group’s current liabilities exceed the current assets by R5.1 billion. How can the board allow the business to continue as a going concern?
In making its going concern assessment the directors have considered several factors, including the strong operational performance, the progress with the group recapitalisation and the interest forbearance agreement concluded with lenders. However, the directors have concluded that the group’s ability to continue as a going concern is dependent on the successful implementation of the group recapitalisation.
The costs of the recapitalisation, including adviser fees, will be disclosed in the circular which will be issued to shareholders ahead of the general meeting to vote on the recapitalisation.
In this scenario, Ascendis will enter a business rescue process. The board of Ascendis will appoint a business rescue practitioner who will initiate an orderly sale of assets to settle the outstanding debt with creditors. In such a business rescue process, shareholders rank behind all other creditors.
The largest shareholders are the International Finance Corporation (12.6% shareholding) and Kefolile Health Investments (6.8% holding).
In a business rescue process, shareholders rank behind all other creditors. Following an accelerated business rescue asset disposal process, it is possible that the outstanding debt may exceed the proceeds from a distress sale of assets. In this worst case scenario, shareholders are likely to receive minimal to zero value.
Please provide more information on the threshold sale values for Biosciences, Animal Health and Respiratory Care Africa.
The threshold values are not disclosed as the disclosure of these values could compromise the sale processes. If the company sells these businesses in aggregate for more or less than the threshold values, the excess / deficit will be applied to the reinstated debt, so any excess value will reduce the reinstated debt and deficit value will increase the reinstated debt.
Have any institutional investors indicated that they will not vote in favour of the proposed transaction?
The company has not had any formal engagement with shareholders to specifically canvass their support for the transaction. This will only happen once the circular and the pro forma financials are available.
The company is aiming to issue the circular by the end of July 2021. However, the timing is dependent on the finalisation of the definitive agreements with Blantyre and L1 and the regulatory approval process of the circular through the JSE.
Management continues to see interest now that the details of the proposed recapitalisation have been announced and potential buyers have more certainty on the businesses that are being retained by Ascendis.
The negotiations on the disposal of Animal Health are ongoing and the company cannot disclose any detail on timing which could compromise the negotiations. It is in the interests of the company and our stakeholders to complete the disposals as expeditiously as possible, and we can assure you that our teams are working hard to conclude these transactions. By participating in the upside above threshold values, it is in the company’s interest to maximise disposal values.