Shareholders in the 55-year-old Namoi Cotton seem set to confirm the co-operative’s conversion to a fully-listed corporate entity next week.
A $30 million to $35m capital raising to attract fresh funds and investors for the cotton ginning, trading and grain marketing business is expected to follow soon after, possibly by the new year.
A postal vote count and shareholder meetings on September 27 will decide the fate of the restructure plan, which is fully supported by directors.
Feedback from members in the past 12 months has also broadly supported a capital restructure to upgrade Namoi’s current dual-class share arrangement.
If the ballot, which is now underway, gets 75 per cent membership backing it will see Namoi’s 207 grower shareholders converting their existing 800 shares each to receive 158,504 ordinary shares, and collectively hold 23 per cent of the company.
Although growers would give up boardroom control to hold only half the director seats, chairman, Stuart Boydell, said the current board firmly believed a restructure was in the best interests of Namoi Cotton’s future, giving the business more access to much-needed capital, and capacity to grow.
The board believes the restructure and capital raising should provide the platform to deliver a stronger Namoi Cotton
It would also create a simpler business structure.
Members will also be giving up their current entitlement to regular grower rebates worth up to 7.5pc of Namoi’s annual after-tax profits, but gain any dividend returns on their new shares.
Better shareholder value
An independent expert’s assessment of the restructure said the new ordinary shares had “potential to increase in value” over time.
The board also believed, all things being equal, the shares would trade at higher prices on the Australian Securities Exchange (ASX) than Namoi’s capital stock has traded to date.
Namoi capital units have fetched about 40 cents in the past year, rising from a 38c low in June to about 45c this week.
The new ordinary shares, including those issued to replace Namoi’s already-listed capital stock, are expected to start trading on the ASX on October 11.
Namoi has had a capital fund listed on the ASX since 1998, currently with about 1600 registered stockholders, but control of the co-op remained in the hands of its members.
Chief executive officer, Jeremy Callachor, said while capital stockholders had provided the business with a source of external investment funding, the current partially-listed co-op structure was “not going to position Namoi adequately” to meet challenges and opportunities ahead.
I don’t think our restructure plans say anything negative about the value of co-operatives
Namoi’s farmer shareholder numbers have been diluted by a consolidation trend which has seen larger cotton growing enterprises dominating the industry, including a notable rise in corporate operations.
“I don’t think our restructure plans say anything negative about the value of co-operatives,” he said.
“It’s about what structure is likely to be more efficient and effective on our industry playing field which is changing significantly.
“There are obviously some very successful co-operatives about, but we’ve had to look at what’s happening in the cotton industry, including changing technology demands.
“We have to be able to be able to stay ahead of that change.
“The board formed the view the current a co-op structure limits acceptable capital raising alternatives.”
A 20pc cent share ownership cap will apply for at least four years after the restructure, while equal board representation between grower directors and non-grower directors will apply for at least five years.
Although no date has been set for the proposed capital raising, Mr Callachor expected it would be in a reasonable period of time after the full public listing, subject to market trends and advice to the board in coming months.
A key reason for the share restructure was to give Namoi access to capital it needs to upgrade ginning operations and technology and expand its grain commodity business.
Existing shareholders will have first rights in the new share offer when the planned $30m-plus capital raising goes ahead.
“The board believes the restructure and capital raising should provide the platform to deliver a stronger Namoi Cotton and provides the best path for Namoi to cement its position as Australia’s leading cotton processing business,” said chairman, Mr Boydell.
He told growers significant change was impacting Namoi Cotton’s business.
Crops were getting larger, but cotton production and markets were more variable, the whole supply chain had greater reliance on new technology and well capitalised multinational companies had greater influence on the industry than ever before.
The company had to respond by diversifying, improving its service offerings to growers, maximising its asset productivity and improving its competitive position in the market.