Tegel refinances debt on way to NZX 50

Tegel Foods2Tegel Foods may be headed for the NZX 50 Index in an initial public offering that could value Affinity Equity Partners’ New Zealand poultry business at about $800 million, although there is a question mark about whether the sale could be completed this year.

Affinity hired Goldman Sachs and Deutsche Bank in August for advice on sale options for NZ’s biggest chicken producer, which it acquired from Pacific Equity Partners in 2011, reportedly for $600 million.

Executives at Tegel have met Charoen Pokphand Group, Thailand’s biggest private company, and JBS, the world’s biggest meat processor, as part of the sales process.

It is understood that while a trade sale is possible, an IPO is the default scenario.

Tegel and its advisers have just completed an unofficial roadshow to make the case for a share sale with institutional investors in NZ. Fund managers, who declined to be named, said the business appeared to be in reasonable order and was “worth a look” although as with all companies coming to market, the success of an IPO would come down to price and market conditions. One investor said Tegel would need to press on if it wanted to get a sale away before Christmas.

The financial statements for Tegel’s immediate parent in the year ended April 26 show earnings before interest and tax rose five per cent to $45.8 million, and revenue grew 8.8 per cent to about $563 million.

Ross Group Holdings refinanced $204 million of bank borrowings, $67.9 million on a mezzanine facility and settled interest rate swap contracts with a new three-year bank facility on August 7, the annual report shows. Annual finance costs were little changed at $35 million in the 2015 year, when interest rates on the company’s debt ranged from 7.5 per cent to 15 per cent.

The bank debt had been repayable in one year and the mezzanine facility in two years. It had interest rate swaps covering 63 per cent of its senior debt facilities at 4.6 per cent annual interest.

Its CEO declined to take questions on whether the change would reduce its $35 million of annual finance costs.

An IPO could leave Affinity with anywhere from 20 per cent to 50 per cent of the company, although it is believed to be targeting 30 per cent to 35 per cent and a holding to benefit from upside in the business. Its shares would likely be subject to an escrow arrangement following an IPO. At $800 million, the company would be bigger than Summerset Group Holdings and Nuplex Industries.

Since buying the business in 2011, Affinity has sold property, including two long-lease chicken processing plants to buyers, among them Wellington-based Caniwi Capital. A share sale would allow investors to gain exposure to a poultry industry that has been predominantly owned by private equity.

Inghams Enterprises (NZ), the country’s second-largest poultry producer, was sold, along with its Australian parent Ingham Enterprises, to TPG for A$880 million in June 2013.

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