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Banking on new $750m junior cap, iCreate presses ahead with debt conversion

The financing deal struck by iCreate Limited to shore up the business will end up pushing the company beyond the regulatory limit for listed junior market companies, but it’s banking on a proposal now under consideration by the Ministry of Finance to avoid the breach.

The company that went public in 2019 as a digital marketing training agency, but has since diversified into real estate and other business lines in search of revenue, got shareholder approval this week to convert its debt into equity–a transaction valued at around $600 million that calls for the issue of new shares to iCreate’s creditors.

The debt conversation is to be executed at a price of $1 per share, within a month, the company said. It would immediately put iCreate in breach of the $500-million upper limit for issued capital to which junior companies on the Jamaica Stock Exchange are subjected.

However, the Jamaican government is said to be in the process of lifting the cap to $750 million, the timeline for which is uncertain.

“With the debt conversion, the number of new shares will be over $600 million. The current shareholding is about $130 million. This will put the company just on the threshold of $750 million,” Wilson said, as he fielded questions about the resolutions at a shareholder meeting on Monday.

Five resolutions passed at the meeting authorised a capital raise, using an expanded suite of convertible debt involving various creditors, including Astronomical Holdings, Kintyre Holdings, JPS Pension Fund, Victoria Mutual Investments Limited, Kerry Spencer Young, Andrew Pairman, Dane Warren and Jevaughn Clarke. The lead arranger for the debt conversion scheme is VM Wealth Management Limited.

The loan arrangements and debt conversion will finalise a leveraged buyout, LBO, of advertising company Visual Vibe Limited. The company plans to expand the operations at Visual Vibe, including increasing the number of mounted screen locations by 50 per cent by June of next year.

Wilson told the Financial Gleaner that in addition to funds from Visual Vibe’s free cash flow of about $72 million and loan proceeds, iCreate would be going after US$1.5 million ($230 million), of fresh equity capital from a rights issue within two months.

Meantime, Wilson told shareholders he was concerned about speculative pressure on iCreate’s share price, which has rocketed it from less than $1 in May to $4.76 at the end of July and sent it falling back to the vicinity of $1.90 recently.

“This kind of speculation and guessing does not bode well for us at iCreate as a company,” he said. “What I want to say to our shareholders is to hold off on speculation and wait until the company has put out the information as it relates to our transactions, and act upon that information that comes officially from the company.”

The possibility of the rights issue was first raised earlier this year.

Wilson told the Financial Gleaner that the recent trading activity in the stock, which has pushed the shares closer to the convertible debt scheme, which will be executed at $1 per share, had more to do with certain timelines agreed between the parties, rather than market conditions.

He also said the pricing for the convertible debt scheme was in line with iCreate’s outlook for the rights issue.

“When we were looking to do the rights issue, we were going to give a 50 per cent discount to offer a benefit to the shareholders. The private debt that we did is in line with what we planned to do with the rights issue,” Wilson said.

The offer price for the right’s issue is still to be finalised, but Wilson said the shares would still likely be sold at a discount.

The iCreate shares closed flat at $1.86 on Thursday, valuing the company at $574 million, or 17 times its book value of $33 million.

For the third quarter ending September, iCreate spun from a loss of $536,000 to profit of $6.9 million. Over nine months, its earnings have grown sixfold to $23 million.

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