Starwin turns to equity as loan cost surges

Starwin Products Limited (SPL), the pharmaceuticals maker, says the GH¢10million it is targetting to raise from shareholders from now to November will be used to clear interest-bearing debts and payables, cushion operating capital and invest in projects that will reposition it to tap opportunities in the growing industry.

The company this week began a renounceable rights issue, in which it has offered a total of 333,359,264 new shares to shareholders at a unit price of GH¢0.03.

Managing Director of the company Mr. Kwasi Yirenkyi, speaking to journalists in Accra on the rationale for seeking additional capital, said the decision forms part of an aggressive recapitalisation drive to reverse the current situation wherein most of the company’s profits are used to service high-interest-bearing loans.

“Since 2004, the operations of this company have hinged on equity as the primary source of funding. To meet up with the growth in recent years, we resorted to borrowing from commercial banks to sustain our operations -- and this has led to the current situation wherein most of the company’s gains go into servicing debts, leaving little to support operations.

“Between 2010 and 2013, finance cost formed approximately 38.79 percent of the company’s operating profit, peaking at 71.59 percent in 2010. This means that although the company keeps growing, profitability remains on the low.

“The rights issue is therefore an aggressive recapitalisation drive to reposition the company to take advantage of the growth in the industry, as we believe that the capital injection will lead to the retirement of some of the company’s debts and payables and also put us in a better position to invest in capital projects that will make us more competitive and productive,” he said.

Aside from making the company capital-efficient, the funds will be used to set up an additional warehouse and factory building in support of Starwin’s five-year strategic plan, which among others targets a turnover of GH¢27million by December 2018.

The plan seeks an increase in its market share from the current 5 percent to 8 percent; a 46.3 percent increase in operating profit; and an increase in net profit to GH¢5.9million. Starwin’s 2013 revenue stood at GH¢6.7million and net profit was GH¢0.5million.

The company is a reputable pharmaceuticals producer and the first of only two firms in the industry to be listed on the Ghana Stock Exchange.

Mr. John Tetteh, Finance Manager, told the B&FT that the current economic situation is impacting negatively on their operations: “The current economic situation has affected us in a very negative way. We rely on banks to run this company, so when the currency situation changed for the worse it really affected our suppliers’ accounts.

“This, coupled with the imposition of the 17.5 percent VAT on pharmaceutical products, has led to general price increases -- thereby reducing demand. We do not have the strength in terms of working capital, and we need this money to help us out of the situation.”