FosRich just released the details for its upcoming rights issue, so let’s take a look.

Here is a quick recap in case you missed the first video. 

FosRich distributes lighting, electrical and solar products.  They’ve been listed on the JSE’s Junior Market since 2017. Last year, the company’s shareholders agreed to raise new capital through a rights issue. In a rights issue, existing shareholders get a chance to buy new shares at a discounted price.

According to FosRich’s circular, the company is offering up just under 56 million shares priced at $2.50 per share.

Now the pricing on this is a bit sticky, because as I record this on July 5, Fosrich ended trading at $2.25. And what did I say is the benefit of a rights issue for investors?  You get to buy at a discount.  But in this case, the rights issue price is higher than the regular trading price.  What probably happened is that they set the rights issue price at a time when the trading price was much higher.  Remember this offer has been delayed for several months due to the drama at SSL.  Earlier this year, Fosrich was trading at well over $3, so $2.50 would’ve been a discount.

Anyway, back to the offer.  So how it works is that as long as you’ve been a shareholder in FosRich before June 2, you will be offered one new share for every 90 shares you own.  You can buy the new shares at $2.50 each.

If you decide not to participate, the shares will go into the abandoned pool, and then other shareholders will be able to buy them. 

If the offer is fully subscribed, FosRich will raise roughly $130 million dollars.  This would bring its share capital right up to the $500 million cap for Junior Market companies.

Companies on the Junior Market benefit from a 10-year tax break.  For the first five years, they pay no taxes and then only 50% of taxes for the next five. But they have a limit on how much capital they can raise, which is $500 million.

The rights issue is set to open on July 11 and close on August 18, but it could close early. 

FosRich also explained how its SSL shareholders will be able to participate. SSL was the lead broker for FosRich’s initial public offer in 2017. SSL shareholders make up around 25% of the company’s shareholder base. 

But the JSE terminated SSL’s member dealer license earlier this year, so SSL clients have not been able to access their accounts or investments since then. And so they wouldn’t have been able to participate in the rights issue. 

Fortunately, FosRich has found a workaround with its new financial advisor, Mayberry Investments.  SSL clients will have to complete a designation form showing that they own Fosrich shares.  Then they can use a different investment account with a different broker to do the transaction. That account will need to be in the same name and have the same tax registration number as their account with SSL; for verification purposes. Once that’s done, they’ll be entitled to all the same rules and opportunities as other shareholders.  And both the JSE and financial services commission have signed off on this plan, so they’re good to go.