Struggling retailer Carpetright has launched its bid to raise £60million in emergency funding to support a major restructuring of the company.
Britain’s biggest carpet seller, which is also embarking on a store closure programme, said today that it has strong backing from shareholders and other investors for plans to issue 232.5m new shares at 28p each.
That represents a discount of around 16 per cent on yesterday’s closing price.
Rights issue: Struggling retailer Carpetright has launched its bid to raise £60m in emergency funding to support a major restructuring of the company
The rights issue is part of a turnaround plan approved by the company’s creditors last month.
However, the move is dependent on approval at next month’s annual meeting and the completion of Carpetright’s Company Voluntary Arrangement, an insolvency procedure which will allow the retailer to shut 81 stores and secure rent reductions on others.
Chief executive Wilf Walsh said: ‘We are delighted to have received such strong support from our shareholders and other investors in achieving this fully underwritten fundraise.
‘The £60million proceeds from the placing and open offer will give us the resources we need to complete our restructuring and accelerate our recovery plan.
‘As well as funding implementation of the CVA to create a right-sized estate of stores on sustainable rents, it will provide the necessary capital to refurbish and modernise the ongoing store estate and to upgrade our digital platform – both vital investments in our future.’
Carpetright recently took out a high-interest £15m loan from major shareholder Meditor to help the company with short-term working capital requirements.
The loan, which has an interest rate of 18 per cent per year, will be paid in a lump sum at the end of the loan’s term on July 31 2020. Meditor also provided an unsecured loan to Carpetright worth £12.5m in March, which will be repaid through the proceeds of the equity fundraising.
A total of £6m of the new funding will cover the costs of implementing the CVA and £33m will bankroll the group’s capital expenditure requirements.
‘We believe that a recapitalised market leader will ultimately be better for customers, suppliers, landlords and shareholders,’ Walsh said.
Store overhaul: Chief executive Wilf Walsh said that the £60m would help modernise the ongoing store estate and upgrade the company’s digital platform
Last month, the company said it expected to book a full-year underlying pre-tax loss of between £7-9m, compared with a £14.4 m profit last year.
The group also bemoaned difficult trading in the final quarter, which saw like-for-like sales plummet 10.5 per cent. For the full year, comparable sales fell 3.6 per cent.
Carpetright has suffered from having too many, poorly-located stores on long and expensive leases. Under the company’s restructuring plan, creditors backed the closure of 90 stores and the renegotiation of 113 leases in an effort to keep the group afloat.
High street retailers have been hit by a drop in consumer spending, soaring costs and the increasing threat of online competitors.
The retail sector has already seen thousands of jobs axed following the collapse of well-known brands.
Last month Poundworld unveiled plans to shut 100 stores across the UK, putting around 1,500 jobs at risk.
It comes as other big names like New Look, Byron and Prezzo also were forced to pursue CVAs this year, while Toys R Us and Maplin collapsed into administration.
Three of the biggest names in British retail – Debenhams, House of Fraser and Littlewoods owner Shop Direct – were also this week rocked by fresh turmoil with Debenhams said to have pushed out directors who have been there for more than a decade.
At House of Fraser, concerns over a deal to rescue the firm are growing as it struggles to get approval from unhappy landlords.
Meanwhile, fears over a looming crackdown on consumer credit have reduced the value of Shop Direct bonds by around £55m. Carpetright shares were up 7.97 per cent at 35.90p in early trading.