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.
Yes, management believes the negotiations are consensual and hopes to reach a consensual outcome on the structure of the recapitalisation with the lenders by 30 April 2021. Evidence of the consensual nature of the negotiations is the interest forbearance agreement, which was completed with Blantyre and L1 Health, allowing for the non-payment of interest until 30 April 2021, which has assisted with the group’s short-term liquidity needs.
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.
What are the key milestones in this recapitalisation process and when are shareholders likely to receive further details?
The first milestone is for the parties to reach agreement on the transaction structure for the group recapitalisation by 30 April 2021.
Immediately after the parties have reached agreement, the final terms of the recapitalisation will be released on SENS.
A detailed circular on the group recapitalisation will be distributed to shareholders by 30 June 2021, including the notice of general meeting and voting instructions.
Why is this process taking so long? The plans to recapitalise the business were communicated in January yet the structure is only planned to be finalised by the end of April and then there is a further two-month delay before the circular is issued?
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, which is due to be distributed by 30 June 2021, 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.
The payment in kind (PIK) facility had a significantly adverse impact on the H1 2021 financial performance. Are there any provisions in the lender agreements to protect the company from the PIK?
Management conducted an extensive search for an equity-based solution to address the debt issue. However, a perennial obstacle in all the negotiations was that the mandates of the private equity firms generally restricted them from investing in certain geographic locations or they were not able to invest in debt instruments. Following an exhaustive process, the directors determined that the only way to remove the PIK facility was to undertake a refinancing of the existing debt.
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.
What are the implications if the company and Blantyre and L1 Health are not able to reach consensual agreement on the proposed structure of the group recapitalisation by the target date of 30 April 2021?
In the event that this date is not extended, a non-consensual outcome will result in the company entering 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.