Beleaguered franchisor Retail Food Group revealed a potential external recapitalisation yesterday afternoon, which would see it granted A$160 million to reduce a roughly $258.9 million debt that has steadily eaten away at declining profits through restructuring costs and write-downs.
The non-binding proposal comes by way of Sydney-based Soliton Capital Partners (SCP), an investment fund backed by Hong Kong’s SSG Capital Management, which typically offers between $40 million and $200 million to businesses seeking to recapitalise, merge, or grow.
“Discussions in relation to this proposal are advanced,” RFG said in its statement to the ASX.
“However, the indicative proposal remains subject to a number of conditions precedent, including the completion of due diligence, and there is no guarantee that any formal agreement will be reached.”
RFG confirmed it has granted SCP a period of ‘limited exclusivity’ while the two businesses work through the agreement, which is likely decrease the value of shares for current shareholders – likely through the issuing of additional shares.
RFG operates the Gloria Jean’s Coffees, Brumby’s Bakeries, Donut King, Michel’s Patisserie, Di Bella Coffee, The Coffee Guy, Café2U, Pizza Capers and Crust Pizza.
Since the start of July, RFG’s share price has risen substantially, from 13 cents a share on July 1 to 21 cents a share on July 9, when this announcement was made.
The ASX asked RFG on July 8 if there was any reason it was aware of that could have caused a spike in shares, and the franchisor responded “no”. However, a day later, it revealed a potential avenue out of its debt issues.
Typically, a trading halt would be implemented in anticipation of significant announcements in an effort to curb the excess buying or selling of shares.
RFG has been contacted for comment and clarification.
This story first appeared on our sister site Inside Retail Australia.