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Savola Group’s board of directors signed off on the company’s SAR 6 bn rights offering to boost its capital, adding 600 mn shares valued at SAR 10 apiece, it said in a disclosure to Tadawul. The Tadawul-listed player will then reduce its capital before offloading its entire 34.5% stake in Almarai to its existing shareholders, with each of the following steps pending regulatory and shareholder approvals.
This has been in the works: Savola first unveiled its plans to exit one of its “most successful investments for Savola Group to date” in February, followed by issuing a prospectus (pdf) for the rights offering earlier this month. Its investment in the dairy giant increased more than 100x since it took a majority stake in what ultimately became the region’s largest dairy outfit in 1991. The PIF is the second biggest shareholder with a 16% stake it holds through one of its units.
REFRESHER- Savola wants to “ unlock value ” — it doesn’t think the market fairly values what it does or what Almarai does, writing in an FAQ that “over the past years, Savola’s market capitalization is approximately equal to the market value of its stake in Almarai.” For folks who like Almarai’s story, it’s a way to get direct exposure. And if you like Savola, buying Savola stock gives you direct exposure to its future growth prospects and starts to do away with the so-called “holding company discount.”
What are those growth prospects? Savola is being cautious, but says it will use the proceeds from the rights issue to pay down debt and “invest in the growth of its portfolio companies.” Savola says that it doesn’t need the transaction to go through to meet its debt obligations. Look for it to deleverage before taking on fresh cash at optimized terms to fund its growth going forward.
