Hygrovest Ltd (ASX:HGV) will support proposed changes to the terms of the unsecured convertible debentures issued by Entourage Health Corp (ENT) which would allow the company to divest its investment in ENT convertible debentures above the current book value.
Notably, the divestment will bring forward the maturity date to June 30, 2022, and reduce the redemption percentage from 100% to 60% of face value.
If the meeting of ENT noteholders approves the amendments, ENT will redeem Hygrovest’s notes for C$3.6 million, plus accrued interest on or around June 30, 2022, which is a premium to HGV’s book value of C$2.5 million as of April 30, 2022.
Divestment summary
“The divestment of HGV’s investment in ENT at a significant premium to our book value is an important step in realising HGV’s underperforming cannabis investments and applying those funds to sectors which have higher growth prospects,” said HGV’s non-executive chairman Peter Wall.
Hygrovest made its initial investment in ENT in September 2019 and now has a current book value of C$2.5 million comprising:
- C$6 million in 8.5% unsecured convertible debenture units issued by ENT which HGV has the option to convert into 3.75 million shares by the maturity date of September 25, 2022.
- The debenture units have preference over ordinary shares with interest paid to HGV on a six-monthly basis.
- The market value of the notes is calculated by multiplying the C$6 million by the market price divided by 100.
- Listed warrants that allow HGV to acquire an additional 3.75 million shares for C$1.80 each by September 25, 2022.
The divestment was negotiated by Parallax Ventures Inc, on behalf of Hygrovest
On the basis that ENT noteholders approve the resolutions, Hygrovest will have generated a loss of 18% on the original investment (after the inclusion of cash interest received).
Whilst the investment return has been well below expectations at the time of initial investment, it should be noted that the return is materially above that for the listed Canadian cannabis sector which has declined approximately 70% since January 2020.