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Final attempt for Ascendis to recover

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When days are dark, are friends few?

When companies find themselves drowning in debt, many tend to call on friends, well INVSTRs, to help out. In some cases, cutting loose ends may be a better option.

Ascendis Health Limited (ASC)

Ascendis Health has seen its share price plummet from a R28.90 per share high to an all-time low of R0.43. The share price is currently trading around R0.57 per share; this comes after the company started struggling to stabilize its debt compared to equity.

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What is Recapitalization?

Simply put, recapitalisation would take place when a company overhauls its financials by increasing debt (if not equity) into its capital; the process may include the disposal of non-core to core assets, making a loss in the overall company.

One of the restructuring mechanisms contemplated by Ascendis during the beginning of the year includes converting its debt into shares in the underlying business units, allowing the company to capitalise the debt into the underlying business.

Ascendis Health recapitalising

Fast forward to the final recapitalisation agreement. Ascendis recently announced that it had reached a final agreement with lenders, according to the terms of the agreement:

"The participating senior lenders will take transfer of Ascendis Health International Holdings which houses the group's interests in Remedica (based in Cyprus) and Sun Wave Pharma (based in Romania). These lenders will also receive the net disposal proceeds of an estimated R1 billion from the sale of South African businesses Respiratory Care Africa (RCA) and Animal Health which were announced in May and July this year."

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After revealing R258 million of recapitalisation fees, with the disposal of Respiratory Care Africa and Animal Health Unit adding R32 million in fees, the company further added that "The group covers the costs incurred by participating lenders in relation to the group recapitalisation transaction. This is in line with market practice for debt transactions."

Recapitalisation fees may reach and even exceed R290 million, bypassing the company's current market value of R254 million. Investors should be aware that the recapitalisation transaction falls under category 1, requiring shareholder approval at the company's Annual General Meeting (AGM) on the 4th of October 2021.

As the company continues with its recapitalisation, speculation around an offer from a third-party (large US company) intending to acquire shares from shareholders has made the rounds on social media.

Ascendis confirmed on the 6th of September 2021 that it had received a letter, highlighting some of the following key terms

  • The Agreement must first be reached between the third party and the lenders to reduce the level of reinstated debt in the Group Recapitalisation from €15m to €5m.
  • The third party will tender for 100% of the shares of Ascendis Health via the issue of Preferred Stock in the third party at a purchase price of R1.50 per share. The Preferred Stock will have a coupon of 5% with a 5-year term.
  • Tendering investors will be given a warrant to purchase 20% of their tendered shares at the end of the 5 years at a price of R1.00 per share.
  • The third party will invest US$20million into Ascendis Health for the sole purpose of additional working capital and growth purposes. 

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Roundup

This may mean a "new beginning" for a debt drowning business as it disposes of its loss-making assets. Recapitalization and restructuring of finances at times may reflect progress in reducing debt to stabilize the company’s capital for future growth. But while it may bring more cash into the company, the sustainability of the results will lay on retained businesses and operations.

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Sources – EasyResearch, JSE Sens, Ascendis Health Limited, Business Live, Moneyweb

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