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Obtala reveals new financing and restructuring deals as it focuses on timber

The transactions lead to the "evolution of a dedicated and focussed timber production and trading business" and a more simple corporate structure
trees
More than US$10mln will be injected into the timber business

Obtala Ltd (LON:OBT) has announced today a series of deals that it expects to positively impact the forestry company’s balance sheet and underlying business structure.

It has agreed to sell its Tanzanian agricultural business for US$2.5mln, it is to receive £7mln of investments from a fund managed by Lombard Odier Asset Management, and, it is to take full ownership of its currently 75%-owned Montara Continental subsidiary.

READ: Obtala to spin out agriculture arm

"Today's announcement represents the culmination of hard work and negotiation over many months with the net result being the evolution of a dedicated and focussed timber production and trading business with a simplified corporate structure,” said Miles Pelham, Obtala chairman.

“In addition, we welcome a significant investment from Volantis and up to US$10mln cash flowing into our trade finance vehicle, which should significantly increase the profitability of the trading division.”

Pelham added: “We believe these developments have the potential to be transformational for Obtala and provide the Group with the strongest possible start to 2019.”

Agriculture sale

The deal to sell the agricultural business to the company’s local Tanzanian partner Envision Consulting will see Obtala initially receive US$250,000 as a deposit, with the balance of the consideration (US$2.25mln) due for payment by the end of March.

Envision will immediately be responsible for all operating costs.

The business unit had an unaudited book value of US$2.1mln as at 31 December 2018 (down from US$2.66mln at the end of June 2018) and the unit showed an unaudited US$1.2mln loss at the end of 2018.  Obtala had provided some US$8mln of loans to the Tanzanian subsidiaries over the prior six years.

Obtala said the transaction is consistent with its strategy to focus on the expansion of the timber operations, particularly in West Africa.

The new injection of funding

The 1798 Volantis Fund Ltd, discretionary managed by Lombard Odier Asset Management, is investing some £2mln through the purchase of Obtala shares – 40mln shares priced at 5p each, a 12% discount to Wednesday’s closing price.

It will subsequently see Volantis own around 12% of the company’s shares.

Volantis will concurrently inject some US$5mln as a loan, secured against trade receivables and qualifying timber inventory. Interest will be at 11.5% per year, paid semi-annually.

The investor will also receive 40mln share warrants, allowing it to acquire 40mln additional new shares at an exercise price of 10p each – 50% of the warrants are exercisable between the loan’s first and third anniversary, while the remainder can be exercised at any time so long as Volantis retains at least 10% of Obtala’s shares.

The loan agreement is set up via an ‘internal trade finance note’ and is between a wholly owned Hong Kong subsidiary of Obtala and Volantis.

Taking full ownership of Montara

Simplifying the ownership structure, Obtala is acquiring the 25% of Montara owned by partner Africa Resource Investment (ARI) for up to US$5mln – US$2.5mln initially, US$2.5mln following the completion of the Tanzania agriculture sale.

ARI is solely owned by Patrick Green who was an employee of Obtala between June 2011 and September 2018. He was most recently the company’s head of forestry for Mozambique.

Obtala noted that ARI is to invest all the cash consideration that it receives for the Montara sale back into the Obtala’s internal trade finance.

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