Cape Town – The terms of a R300m rights offer announced on Wednesday by Seardel Investment Corporation suggests SA’s largest clothing and textile company is clearly feeling the economic pinch.

Seardel shareholders will be offered 6.66 new shares at a price of 50c/share for every share currently held.

The rights offer price has been pitched well below Seardel’s average trading price of 400c for its ordinary and N-shares.

The rights offer comes only days after founder and major shareholders Aaron Searll announced he would step down as CEO of Seardel next month. Walter Simeoni – currently the MD of Seardel’s textile division, replaces Searll.

The rights offer proceeds will help Seardel shore up its balance sheet for what one industry source describes as “an impossibly difficult time for clothing and textile manufacturers.”

Interim profits to end-December 2007 for Seardel dropped 97% to just R1.2m. At that time Searll noted that the greatest impact on the whole apparel and textile value chain came from massive imports.

He disclosed that about 75% of the volume (being 314m units worth a whopping R5.84bn) came from China.

Participation in the proposed Seardel rights offer is tantamount to betting that the group can not only withstand but compete profitably with the glut of cheaper imports mainly from the Far East.

Some market watchers believe that the only realistic chance Seardel has to compete profitably is if the rand exchange rate against major international currencies wanes markedly.

But one market watcher reckoned that with Walter Simeoni as Seardel’s new CEO a “new realism” around operating efficiencies may come to the fore.

The most intriguing part of the rights offer, however, is that Hosken Consolidated Investments (HCI) looks set to become a major shareholder in Seardel by underwriting the rights offer to the tune of R200m.

Major shareholders in Seardel – the A Searll Descendants Trust, Grawood and the South African Clothing & Textile Workers Union (who collectively hold 49% the company) have agreed to renounce their rights in favour of HCI.

The HCI connection is not all that surprising as HCI CEO Johnny Copelyn sits on Seardel’s board.

Copelyn, a former trade union stalwart, is likely to resist calls from shareholders for Seardel to unlock value by closing down less efficient plants and selling off the (valuable) industrial properties that house these operational assets. Concerns around large scale job losses have been cited as the main reason not to strip out Seardel’s property value, which was last stated as R1.7bn or 1 700c/share.

Source: Marc Hasenfuss – Fin24