Retail Food Group launches institutional share placement and purchase plan to raise $160m

The embattled Queensland franchisor behind Donut King, Gloria Jeans and Pizza Capers has been thrown a last-minute lifeline as its $260m debt deadline loomed. But it still might not be enough.

EMBATTLED Southport franchisor Retail Food group has launched a $150 million institutional share placement, as well as a $10 million share purchase plan, as it attempts to tackle $260 million of debt that was due by the end of the month.

The company behind Donut King, Gloria Jeans and Pizza Capers said it had struck a debt restructuring deal with its lenders, which had extended the deadline to February 28.

It said $118.5 million of proceeds from the 1.5 billion-share offer would go to the lenders, which had agreed to write off $71.8 million of existing debt, and to provide a new $75.5 million loan facility to refinance remaining debt.

The company hopes the fundraising moves, both at 10c per share, will raise $160 million to go towards repaying the debt, strengthening the company’s balance sheet and providing working capital.

Announcing the launch, RFG also unveiled an underlying net earnings guidance of $42 million to $46 million for the current financial year.

The guidance does not take into account new accounting standards on reporting lease liabilities and recording of revenue from customer contracts.

In its investor presentation for the placement, RFG said it was likely to close another 130 stores this financial yeas, placing more pressure on the dwindling earnings.

RFG said the share placement, to sophisticated and professional investors, had the ability to accept oversubscriptions.

It is subject to shareholder approval at a general meeting of the company to be held “on or around” November 19.

Petra Capital and Shaw and Partners will act as joint lead managers and joint bookrunners to the placement while Aitken Murray Capital Partners is acting as co-lead manager.

RFG said the $10 million share placement plan could be expanded to $20 million.

The placement opens today and is scheduled to close on Monday.

RFG requested its shares be placed into a trading halt before the market opened today, while it gauged interest from investment funds in a potential new share placement.

Shares were trading at 17c at the close of the market yesterday.

The offices of RFG at Olympic Circuit in Southport. Picture Glenn Hampson

Shares in RFG were also paused from trading on September 25 as the company confirmed it had approached some investors for help with its overwhelming debts.

Shareholders had been waiting for the company to reveal whether or not it would receive $160 million in rescue funding from Sydney group Soliton Capital Partners.

The funding was seen as a lifeline for the struggling company, which has $262 million in secured loans due for payment by the end of the month, however a number of media reports had cast doubt on whether the deal will proceed.

Soliton is backed by Hong Kong credit and special situations firm SSG Capital Management.

Retail Food Group executive chairman Peter George. Photo: Supplied

RFG halved its losses from last financial year to post a still-staggering $149.26 million net loss for 2018-19.

In an announcement after the market closed on August 30, RFG reported revenue of $349.77 million, down 6.5 per cent from the $374.03 million logged last year, with underlying earnings down 28.9 per cent to $50.73 million from $71.36 million.

The net loss recognised $185.2 million in writedowns and restructuring costs.

It said it had asked for, but was yet to receive, further extensions on lending covenants for $262 million in secured loans and that it had been ordered by two federal agencies to hand over documents as part of investigations into whether it breached the Corporations Act and Australian Consumer Law.

Its loans are due for repayment on October 31.

At the time RFG said it was “well advanced” in raising up to $160 million in funds to pay down debt, either through the further financing package with Soliton or a new equity raising.

“The group will also seek to agree a new financing facility for the residual debt with the existing syndicated debt lenders as part of a comprehensive funding program, in conjunction with the Soliton proposal or the new equity raising, or other potential financing,” RFG said.

The company said it was aiming for costs savings of $20 million a year as it looked to relieve its debt and revealed 173 domestic outlets had closed during the financial year.

Fiona Sang prepares one of the last batches of cinnamon donuts as the store prepared to close its doors at Casuarina Square.

RFG has battled for 20 months to recover from a volley of hits to its reputation and financial situation after franchisees, and then a parliamentary inquiry, revealed its business model had exploited franchisees.

In March RFG’s lenders, NAB and Westpac, agreed to waive a key review of its loan conditions that had hung over the company since the end of February.

Talks with a potential buyer for Donut King and Crust, as well as fellow brand Pizza Capers, collapsed in April after RFG said the proposed price for the chains was too low.