G8 Education is tapping investors for $100 million through a fully underwritten institutional placement to fund growth opportunities and reduce debt on the same day the company's long-time boss Chris Scott has announced his retirement.
In a trading update, the childcare centre owner also said it has terminated the second tranche of the placement with the Chinese group CIPI, part of G8's previous plans to expand into China.
The deal comes as property investors have ear-marked the childcare sector as one of growth, with more than $120 million worth of properties bought in the past year.
"Following a review of the market, G8 has elected, at this time, not to pursue any opportunities in relation to the early education sector in China," managing director Gary Carroll said.
"It was surprising and disappointing that CIPI did not fulfil its payment obligations under the share placement."
CIPI settled tranche 1 in February, which equalled $63 million, but has reneged on tranche 2, which amounted to $149 million
The G8 directors have now amended tranche 2, with CIPI now committing to subscribe for 8.2 million shares at a price of $3.88, representing $31.8 million of proceeds to G8. Settlement is expected to occur before 20 July, however, if CIPI fails to settle by that date G8 has the right to sell tranche 1 shares to satisfy the settlement.
The placement price, underwritten by UBS and Ord Minnett, will be determined via a variable price bookbuild with a floor price of $3.10 and a maximum price of $3.20, which represents a discount of 7.2 per cent to 10.1 per cent.
Mr Carroll said the funds raised will strengthen the balance sheet through repayment of the $50 million bond as well as the $40 million drawn under the Bankwest working capital facility.
It will also partly fund the committed child care centre acquisitions in Australia as announced in February. These acquisitions total about $200 million and are expected to settle between now and mid???2019.
According to brokers at Petra Capital, on a rolling 12-month basis G8's like-for-like occupancy as at the end of April was 77.7 per cent, down 3.4 per cent from the prior corresponding period due to industry supply increases, weaker demand in select markets and centre???specific issues.
The impact of lower occupancy has been offset by price increases as well as strong cost control which, through active management, have resulted in an improvement in underlying earnings margins.
"The pace of acquisitions has been slightly impacted by some delays in development processes, with the resulting EBIT impact from 2017 acquisitions now expected to be about $4 million below the previously stated $7 million forecast," the brokers said.
