Cash Converters seeks capital to pay down debt, pursue growth

Cash convertersCash Converters (CCV) has asked shareholders to pony up to help it pay down debt and improve its balance sheet, launching a $39.5 million entitlement offer on Wednesday morning.

Eligible shareholders will be entitled to one new share for every four currently owned at an issue price of 32 cents, slightly below the 36 cents its stock was at before moving into a trading halt yesterday.

The second-hand and personal financial services provider’s largest shareholder, US pawn giant EzCorp, has signed on for its full entitlement, which will see it acquire just under a third of the 123.3 million new shares expected to be issued for around $12.5 million.

The raising is slated to leave CCV with $138.9 million in available funds when combined with almost $100 million in existing cash and equivalents.

It plans to use these funds to pay off a $60 million bond that matures in September, saving it around $4.8 million in annual interest payments.

The remaining $77 million will be used to pursue growth opportunities, signalling that the business may be in the market for acquisitions.

Chief executive Mark Reid told Inside Retail on Monday that the new capital would allow the business to build on the growth momentum it demonstrated during the first half of fiscal 18.

“The additional capital will allow flexibility to pursue growth opportunities whilst maintaining sufficient working capital. Cash Converters is focused on growing its loan and retail offerings whilst also focusing on attracting new customers,” he said.

“In tandem with operating changes, we have a real focus on reducing net debt, to free up additional capital to pursue this growth.”

CCV’s personal finance and green light auto car financing businesses will be beneficiaries of additional investment under a “deliberate strategy” to grow its customer base.

Younger customers will also be targets, with a new campaign launching to market pawning to millennials.

“Australians can often suffer from a lack of finances with fewer lending opportunities available to them, so this very exciting campaign really does talk to a new set of customers,” Reid said.

CCV has been exploring international opportunities for some time and could use the new capital to fund an offshore project, but Reid said no potential acquisitions were being actively negotiated.

Net debt is expected to fall from $56.8 million to $18.8 million after the raising, while CCV’s gearing ratio is slated to fall from 21 per cent to 6.1 per cent.

In a trading update delivered alongside the announcement on Wednesday CCV reaffirmed guidance that its second half would be stronger than the first, underpinned by “moderate” growth in its loan book.

CCV booked a 35 per cent increase in the value of its loan book to $115.7 million in the first-half, while net bad debt declined to 11.3 per cent and has continued to track “in line with expectations” in the second half.

The offer opens on 5 June and closes on 18 June.


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