ABC set to raise $1 billion ::

Author: Liam Walsh
Date: 30/05/2007
Publication: The Courier Mail

ABC will raise the funds partly via issuing new shares in a move the company pledged last year to refrain from doing.

Almost $400 million of the funds are coming from new shares being issued to Singapore government-owned investor Temasek.

The other $600 million is via an offer of subordinated convertible notes, which can be turned into shares.

Shares were locked in a trading halt at $7.24 while ABC briefed investors about the proposals and issued a prospectus.

It comes a week after ABC released earnings guidance, which analysts thought was either hinting at another transaction or trying to flag better times in the US following concern about growth there. ABC, which plans to have 2305 centres across three continents by next month, yesterday spoke of "further opportunities in the large and fragmented US childcare market".

The company declined to comment on speculation it was eyeing US giants Knowledge Learning Corp or Bright Horizons.

The move comes despite ABC's global operations chief executive officer Eddy Groves telling shareholders last year that US buyouts would be funded through "debt and cash flow" rather than more equity. Yesterday, ABC argued the notes were a "debt instrument".

"Conversion is an ABC option, not the note holders, so ABC can choose," the company said. It did not respond to questions about the new shares to Temasek.

Clime Asset Management managing director Roger Montgomery said the move was diluting existing shareholders and reduced the value of the business.

ABC was now borrowing more money to repay debts and this could ultimately be turned into equity, he said. The business had grown earnings over five years but profitability (in terms of return on equity) had been in decline, he said.

"When management's ambitions are on a faster track than the business's profits, minority shareholders are potentially in for a rough ride," Mr Montgomery said. "Maybe Eddy can pull it off, but he's making it harder and harder for himself."

Dean Fergie of Opis Capital which has a stake in ABC, said the move was expected although some thought it would come after the full-year result was released.

He said the size of the take-up by Temasek, at the $7.30 price above the trading halt, indicated a "fair bit of faith" in ABC. "In terms of (ABC's) ability to raise funds in order to expand, this has been a real feather in their cap."

Temasek last night said it "found in ABC a strong management team and a scalable model". "ABC is well-positioned to participate in and contribute towards the growth and development of early childhood education globally."

A prospectus noted ABC was even considering buying 10 childcare centres in Singapore. ABC was also negotiating a new $1.4 billion financial line with Westpac and the Commonwealth Bank. A pro forma presentation to analysts showed ABC would have borrowings of $1.3 billion and net assets of $2.3 billion. Non-cancellable leases totalled $3.1 billion.

Back to articles