Crown Paints Limited plans to do a pre-emptive rights issue that will see its shareholders participate in the acquisition of 71,181,000 out of the 92,526,000 newly created shares.
Preemptive rights are a contractual clause giving a shareholder the right to buy additional shares in any future issue of the Company’s ordinary shares before opening them up to the general public.
During its 63rd Annual General Meeting(AGM) held on 30th October, 2020, shareholders authorised directors of the paints manufacturer to allot and issue the remaining 21,345,000 ordinary shares in such as a manner that the Board of the Company may determine.
The rights issue, involving the new 71,181,000 new shares, is to be done within 5 years from 31st October 2020.
These transactions are subject to approvals from the Capital Markets Authority(CMA) and any other relevant regulatory bodies.
In a special resolution, shareholders of the firm waived their rights of pre-emption, thereby granting the power to allot and issue the additional 21,345,000 ordinary shares, to directors of Crown Paints.
The firm reckons its idea of doing a rights issue is to bring the Group’s indebtedness to a more sustainable level and to position it to take advantage of its long-term growth opportunities and gain market share in the East African region.
While the Company’s business outlook in Kenya is secure, its subsidiaries (Crown Paints TanzaniaLimited, Regal Paints Uganda Limited and Crown Paints Rwanda Limited) performance for over the last few years has remained depressed due to the adverse competitive environment which has led to the Company supporting the subsidiaries financially.
Despite the enhanced regional integration in the East African Community, there remain challenges in the respective paint markets, thereby negatively impacting the financial performance of the subsidiaries.
The Group’s Board said in a statement that the rights issue would specifically enable the Company to secure its balance sheet strength to give it a competitive advantage in a competitive market.
Crown Paints will also be able to invest in its subsidiaries which have hitherto made losses, diversify its product lines to meet changing customer needs and enable the firm to deleverage and reduce reliance on short-term debt.
“The Board unanimously believes that the Rights Issue is necessary and will put the Group in the best possible position to deliver this strategy and returns to shareholders over the long-term,” said C Nyukuri, Company Secretary on behalf of the Board.