By: Brindaveni Naidoo
31st October 2011

A specific issue and rights offer, part of a recapitalisation strategy, would see State-owned Industrial Development Corporation (IDC) become an equity partner in listed paint and coatings manufacturer Chemical Specialities (ChemSpec).

The IDC has taken up 75-million shares in the JSE-listed business, and it will take up a further 75-million shares through the rights offer, giving it a 15% stake in the paint maker and distributor.
CEO Bruce Mackinnon said on Monday that the capital introduced by the IDC would provide financial stability in the turnaround growth of the company.

ChemSpec reported a loss of R110-million in the 2011 financial year ending March on the back of one-off costs related to legal wrangles related to its previous CEO, and has experienced significant challenges including a fire at its production facility in 2009.

Financial director Jonathan Maehler told Engineering News Online that the specific issue and rights offer would be completed at the end of November.

This would enable the company to strengthen its balance sheet and ensure a platform from which it could pursue strategic opportunities.

The recapitalisation would also see the company capitalise on loans from private equity business in the FirstRand Group RMB Corvest and Clark Investments.

LOSS NARROWS
The company reported a loss of R15-million and a loss a share of 3.62c in the first six months of the 2012 financial year. This is a 68% and 74% improvement from the loss of R46-million and loss a share of 14.04c Chemspec reported a year earlier.

Revenue increased by 23% year-on-year to R1.8-million.

Overheads have been reduced from an average of R20.8-million a month in the previous year, to R17.3-million a month from September. Mackinnon said the bulk of the cost savings would come through in the second half of the year.

Maehler said the company aims to be in a break-even position by the end of November, but that it would really only come through in the next financial year.

Mackinnon hoped ChemSpec could achieve a turnover of R600-million, as it did in 2009, and in the medium to long term grow that figure to R1-billion.

The company maintains a strong business in North America and Australia, and is looking to increase its African footprint.

The company enjoys good market share in Botswana, from which it hopes to springboard into the rest of Africa. Mackinnon said when such growth opportunities did arise, ChemSpec would look into possible joint ventures or growing its own operations.

Edited by: Mariaan Webb

Source: Engineering News (http://www.engineeringnews.co.za/article/idc-to-invest-in-paint-manufacturer-chemspec-2011-10-31)