Sat | Jun 3, 2023

Citing market softness, FosRich pulls back from APO

Published:Wednesday | March 29, 2023 | 12:46 AM
Cecil Foster, CEO of FosRich Company Limited.
Cecil Foster, CEO of FosRich Company Limited.

Electrical lighting company FosRich is pulling back from its plan to raise funds on the equity market.

In July 2022 shareholders had given the go-ahead for FosRich engage in a rights issue or an additional public offering, and the company had been awaiting the green light from regulators in order to proceed.

But within that period, the stock market has gotten softer, and equities have been on the decline.

So while FosRich Managing Director Cecil Foster says the expected approvals came two weeks ago, but the company is now less inclined to push ahead with the capital raise.

“That might be something that we have to relook and may want to put it back to the shareholders,” Foster said on an earnings call to discuss the company’s year end financial report for 2022.

The company had positioned for the issue of new shares by first splitting its stock 10 for one and increasing its authorised authorised capital thirtyfold from nearly 513 million units to 15 billion.

It planned to raise $139 million, which Foster said was not a lot of funds. But it would have taken FosRich to the limit of the share capital it can hold as a junior market company. Issued capital is capped at $500 million on the junior exchange.

The company was authorised by its shareholders to sell up to 126 million more shares on the junior market, and had planned to do so prior to the end of last year.

But nearly four months later, the calculus has changed.

FosRich shares peaked at $4.68 in October but closed the calendar year at $3.91. Last Friday, the shares traded $2.72 and continued to slide this week to $2.62.

Its trajectory follows the that of the overall market, with the junior market index dipping from 3,986 at year end to 3,694 points as of Tuesday; while the combined market fell from, 368,592 points to 337,774 points in the same period.

“Now that it is ready to go, we’re thinking that the price of the shares might not be in a place that we’d really want right now,” Foster said at the briefing.

The issue will be raised with shareholders at its annual general meeting scheduled for June, he later told the Financial Gleaner.

The move to delay coincides with an anticipated increase in the maximum allowable share capital for junior marker companies to $750 million, a plan that requires approval from the Minister of Finance. Foster would not be drawn into a comment on that matter.

At year ending December, FosRich’s share capital was just under $370 million. Its $139 million fundraising target would put it just beyond the $500 million cap, and could force the electrical lighting and pipe manufacturing company’s migration to the main market.

So far, throughout its short history, three junior companies have migrated to the main market of the Jamaica Stock Exchange for different reasons, the last being distribution company Caribbean Producers Jamaica Limited in 2021. It was preceded by Key Insurance Company in 2020 and investment company Eppley Limited at the end of 2018.

Meanwhile, FosRich is doubling down on PVC pipes and fittings, solar systems and the growth of its transformer business for about a 40 per cent increase in total revenues. Foster says the company has valued the PVC market at about $20 billion per year and presently has about 10 per cent market share.

Having grown annual production capacity from 3,000 kilogrammes per year to about 15,000kg, FosRich is poised to rival imports in the hunt for market share.

The company will also start manufacturing coils for electrical transformers, starting in April. Additionally, the company is taking preparatory steps to enter Guyana, but is still to determine whether it will be winding coils for transformers solely in Jamaica or extending operations to Guyana to take advantage of the fact that there are six power companies in that country.

Its transformer repair business currently has one client: monopoly distributor of electricity and manager of the national power grid, Jamaica Public Service Company.

neville.graham@gleanerjm.com