Aryzta investors could see share dilution of more than 40%

Investors in troubled Irish-Swiss baker Aryzta face having their holdings diluted by more than 40 per cent should the group decide to issue new shares, analysts say.

Shares in the company that makes Cuisine de France bread and McDonalds burger buns hit a 52-week low of 9.928 Swiss francs (€8.66) yesterday in Zurich before closing 1.06 per cent down at 10.24 francs.

Backers fled Aryzta in recent days believing that it may have to issue new shares to shore up its finances against a €1.6 billion-plus debt.

Ian Hunter, analyst with stockbroker Investec in Dublin, calculated that Aryzta would have to raise about €335 million by selling new shares in the company.

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Even allowing for a low discount on recent share price, he said that the group would have to issue about 36 million new shares.

Dilute

That would dilute existing investors’ holdings by more than 40 per cent. In other words, unless they buy some of the new shares issued by the company, their share of it would fall by more than 40 per cent.

Mr Hunter suggested that Aryzta would choose options other than issuing new shares such as renegotiating terms with its banks.

However, others believe that the group is likely to tap the stock market for further cash to negotiate through its current problems.

Joern Iffert of UBS, one of Aryzta's banks, also calculated that the group would have to raise more than €300 million by issuing new shares.

‘Chronic levels of debt’

Fintan Ryan of Berenberg published a note this week saying the company would have to raise capital to ease “chronic levels of debt” and give it room to restructure and reinvest.

Investors and analysts fear that Aryzta, led by Irishman Kevin Toland, risks breaking an agreement with its banks that net debt at its financial year end, July 31st, would not exceed four times earnings.

Most assessments calculate that net debt was about €1.65 billion while earnings were a little over €300 million, less than one-fifth of its net liabilities.

The company is not due to publish accounts for its last financial year until October 1st. However, had it breached its agreement – known as a covenant – with the bank, it would have been obliged to state this publicly.