Indian engineering, procurement and construction group McNally Bharat Engineering (MBE) is paying a premium price to increase its stake in AIM-listed engineer Specialist Energy Group.
MBE subsidiary MBE Mineral Technologies has stumped up 50p a share for 10m new ordinary shares of Specialist Energy; that's well above the 25p mid-market closing price of Specialist Energy Group (SEG) on the last trading date before the announcement of MBE's share subscription. MBE's stake will increase from 25.27% to 41.69% following the share subscription, but SEG chairman John May emphasised that MBE remains committed to SEG remaining a listed company for at least two more years.
The UK company has also announced new borrowing facilities of £12m from Standard Chartered bank and MBE, which, together with the £5m or so raised from the share subscription, will be used to pay off its old banks so it can switch to banking with Standard Chartered.
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The anticipated net debt within SEG after the repayment of debts to its previous bank will be reduced from £9.4m to £8.4m before costs on a pro-forma basis.
Standard Chartered will also provide £2.8m of bonds and guarantees to SEG which, combined with the loans, will significantly improve working capital for the company.
The spate of share issuance does not stop there, however; SEG intends to issue up to 4m new ordinary share to MBE to acquire a 20% to 24% stake in MBE Cologne Engineering. The German company, a wholly owned subsidiary of MBE, specialises in the manufacture of specialist machinery and components for the material handling and power generation sectors.
Three new directors proposed by MBE will join the board, replacing Christopher Every and Ronald Emerson, who are due to step down on completion of the transaction.
The alliance with McNally Bharat will give SEG increased access to key growth markets, especially India, Africa and South America, the company statement said.
On the other side of the coin, SEG's Hayward Tyler subsidiary will give McNally Bharat improved access to North American and Chinese markets and a broader portfolio of products and services to market.
John May, Chairman of SEG, said the agreements with MBE will transform the group.
"MBE is fully supportive of our company's senior management team, its strategic plan for Hayward Tyler and supporting the development of the group," May revealed.
Shares in Specialist Energy Group rose 11.5p to 36.5p in the first hour of trading after the announcement.
The group is set to release full year results in the middle of April. Overall revenues for the year are expected to be in the region of £32.1m with trading operating profit of £2.5m and trading profit after tax of £1.5m (before any non-cash non-trading items).
The board is currently reviewing the specific uncertainty surrounding the collectability of various receivables which may require a provision of up to £1m.
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