Will RFG be rescued by $160m capital injection?

Written on the 10 July 2019 by Matt Ogg

Will RFG be rescued by $160m capital injection?

The company responsible for franchises such as Michel's Patisserie, Gloria Jeans and Donut King may receive a tailwind to push it out of the doldrums, thanks to a Sydney-based investor backed by capital from Hong Kong's SSG Capital Management.

Retail Food Group (RFG) announced yesterday it had received a non-binding proposal from Soliton Capital Partners to provide around $160 million to recapitalise the company.

The announcement follows questions from the ASX around a sudden lift in the share price since late last week, which RFG speculated may have stemmed from media coverage of its turnaround strategy.

The proposed recapitalisation would be enough to cover the $158 million in total liabilities recorded by the company in its first half financial results. 

However, it is yet to be seen how much improvement was made in the second half after a dismal $111.1 million loss in the preceeding period.

RFG's current market capitalisation stands at $39.2 million, with the group still reeling from the effects of a scathing report from a parliamentary inquiry into franchising. 

The struggling franchisor reiterated discussions around the proposal were advanced.

"However, the indicative proposal remains subject to a number of conditions precedent, including the completion of detailed due diligence, and there is no guarantee that any formal agreement will be reached," the company said.

"RFG has granted Soliton Capital Partners limited exclusivity while discussions continue and further due diligence is being undertaken. Any formal recapitalisation proposal which might be concluded is expected to include debt and equity/equity-linked components, and may be dilutive to existing shareholders."

The company added discussions relating to the sale of one of its non-core assets were at an advanced stage, but similarly there was no guarantee any formal agreement will be reached.

Whether the deal goes ahead or not, it would arguably be an improvement on the administration rumours that were circulating just four months ago.

In April, the entity failed to reach an acceptable agreement to offload its Donut King and quick service retail (QSR) brands, which would have helped pay down debt. 

A month later the company was in the spotlight again for all the wrong reasons after sending a memo to franchisees to extend expiry dates on packaging, only to then reverse the decision and start withdrawing the supplies.

"RFG follows strict standards with regard to food quality and any product date extension was granted following written approval from the supplier and with consumer safety top of mind," the group said.

"Regardless, RFG has taken voluntary action and is in the process of withdrawing any products which had received approved date extensions from our suppliers.

"In the past 18 months, RFG brands engaged with less than 1 per cent of its supplier network to request possible shelf life extension where appropriate and safe to do so. These extensions related to 0.25 per cent of RFG's annual spend with its supplier network."

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Author: Matt Ogg

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