- Plan to raise 650 million euros needs shareholder approval
- Three banks back program that will cap investment, pay bonds
Abengoa SA said its Chairman Felipe Benjumea, who led the company for 25 years, will leave the board as it scheduled a shareholder meeting to approve a sale of new stock.
The decision to raise at least 650 million euros ($725.5 million) ends weeks of uncertainty about measures to shore up Abengoa’s balance sheet after accounting changes and drop in free cash flow sent the stock plunging.
“The rights issue is a first step in the right direction, but it’s not a complete solution,” said Louis Gargour, chief investment officer of London-based LNG Capital, an alternative investment-management firm that holds Abengoa bonds. “The company requires access to capital markets and ongoing financing. If that proves difficult, Abengoa may still need a restructuring.”
The offering is Abengoa’s third capital increase in four years and caps months of tension between investors and the executive team. Benjumea, 58, will continue to carry the title of honorary chairman. His place on the board will be covered by Jose Dominguez Abascal, who will be non-executive chairman. Santiago Seage was appointed chief executive officer in May.
Turmoil at Abengoa started in November when it changed the way it accounted for some types of debt, leading to a slide in its stocks and bonds.
Troubles mounted in July when the company cut its guidance for free cash flow. The resulting sell-off slashed more than 1 billion euros off its market value and made Abengoa the second most volatile stock in the Stoxx Europe 600 index for most of August. Its bonds posted the worst performance on the Bank of America Merrill Lynch Euro High Yield Index for several days.
In its latest move, Abengoa said it will limit capital investment to 50 million euros a year until debt targets are met, according to a statement on Thursday from the producer of renewable energy based in Seville, Spain. Three banks will underwrite 465 million euros in Class B shares, the most liquid.
Majority shareholder Inversion Corporativa IC SA pledged to invest at least 120 million euros in the offering. After the deal, IC’s stake will be reduced to no more than 40 percent from 57 percent currently, according to Thursday’s statement. IC is a holding company owned by some 300 shareholders, with the biggest groups formed mainly by heirs of founder Javier Benjumea.
The company is setting debt reduction as a “key target" and plans to pay back 375 million euros of bonds due in 2016 by the end of this year, according to the filing. Abengoa also will limit its capital investments until it’s awarded a BB-minus credit rating by Standard & Poor’s, a Ba3 at Moody’s or until its leverage ratio of corporate debt to earnings before interest, taxes, depreciation and amortization drops below 3.5.
The new strategy will solve Abengoa’s funding needs "for good in the next few months," Seage said in a conference call with investors today. Seage said executives will be meeting investors in Europe and the U.S. starting Monday 28.
Abengoa’s Class B shares rose 8.8 percent to 1.06 euros at 9:32 a.m. in Madrid trading. Abengoa’s 500 million euros of 8.5 percent bonds maturing in March 2016 jumped 29 cents on the euro to 88 cents, the highest in more than three weeks, according to data compiled by Bloomberg.
Credit-default swaps insuring 10 million euros of Abengoa’s debt for five years fell to 5.7 million euros upfront from 7 million euros on Wednesday, according to data provider CMA. That’s in addition to 500,000 euros annually and signals a 76 percent probability of default within that time, down from 88 percent Wednesday.
Previously, Seage had been chairman of Abengoa Yield Plc, the New York-listed company Abengoa spun off in June 2014 with an initial public offering. Abengoa Yield is a so-called yieldco, an entity created to pay dividends earned from operating power plants. Abengoa will now seek to reduce its stake in Abengoa Yield, according to Thursday’s statement.
The banks underwriting the capital increase are HSBC Holdings Plc, Banco Santander SA and Credit Agricole SA.
Waddell & Reed Investment Management has pledged to invest 65 million euros in Class B shares, according to the statement.