Research Notes
Pharmacy Chain 36.6 to hold additional issue: the last hope?
| 16.01.09 |
On January 9, 2009, Pharmacy Chain 36.6 held an EGM, where a decision was made to raise the company’s charter capital by means of floating an additional share issue. The company plans to float as many as 85.5 million shares, which could boost its charter capital by 10x. In our opinion, given the size of the additional issue, and the pharmacy chain’s current financial health, the stock floatation carries solely a bankruptcy prevention function and aims primarily at attracting additional funds to redeem the company’s current debt of USD 160 million.
Although our fair value for Pharmacy Chain 36.6 amounts to USD 2.5 per share, which implies a 27% upside to the current market valuation, we recommend that investors restrain from participation in the company’s additional issue due to the high degree of uncertainty and the ongoing high risk of the pharmacy chain’s bankruptcy if it is unable to attract enough funds to redeem its short-term liabilities.
In addition, even if the additional issue is successfully placed, the resulting funds will suffice to repay only the company’s current liabilities. These funds will not be used in the pharmacy network’s operational or investment activities.
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Sectors: Consumer, RetailingCompany: Pharmacy Chain 36,6