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Aluwork shareholders doubt management's credentials?

BY: Arku Jasmine

Mr E Kwasi Okoh -MD, AluworksAttempts by Aluworks to raise GH¢30 million through a rights issue have tumbled albeit successful. Grahic Business' Maxwell Adombila Akalaare looks at the underlining factors and the impact on the company’s operations and reports that an investment analyst with Ecobank Development Corporation (EDC), Mr Mahama Iddrisu, fears the company's inability to raise the GH¢30 million mark could be an indictment on the ability of its management to steer the affairs of the company.

The results of the offer could also create a negative impression about Aluworks in the eyes of local and foreign investors, Mr iddrisu added, explaining that it had the tendency of making the aluminium manufacturer to look as though it’s shareholders are, themselves, not confident in the future prospects of their company.

“But if the existing shareholders don’t have trust in their company, why will outsiders believe in it,” Mr Iddrisu, who is also the Head of Brokerage at EDC, asked in an interview.

Aluworks’ Managing Director, Mr E. Kwasi Okoh, however, disagreed.

He stressed that the results had nothing to do with management but was rather tied to its current predicament in which cheap imports from China and low working capital is forcing it to produce below capacity and demand.

“In fact, if you looked at our annual results, you will realise that our finances have been improving year-after-year.”

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“The difficulty we have is with the level of interest on the outstanding commercial loans and the exchange losses that arise on those loans.”

“These are external and have nothing to do with the way the company is run,” Mr Okoh said, adding that those factors necessitated the need for extra funds to help retire the loans and invest in the business.

THE OFFER
Aluworks, which is jointly owned by a variety of institutions and individuals, including the Ghana Cocoa Board (COCOBOD), the Social Security and National Insurance

Trust and Strategic Initiatives Limited, embarked on a rights issue that ran from February 25 to March 22.

It was seeking to raise GH¢30  million through the sale of 600 million ordinary new shares.

Proceeds of the offer were to help Aluworks “to grow to attain the potential that it is known to have,” a brochure on how the funds will be applied said.

The amount sought for, however, failed to materialise as a circular from Strategic African Securities (SAS) – the sponsor and financial advisor – indicates that only a little over GH¢7.2 million was realised through the sale of some 144.6 million shares.

The amount raised represented about 24 per cent of the expected amount and was a little above the GH¢6 million that was required to make it successful.

Although the circular from SAS did not say which of the company’s shareholders exercised their rights, GRAPHIC BUSINESS checks indicate that most of the top shareholders failed to do that.

The COCOBOD – a 48.6 per cent owner of Aluworks – did not pick its rights neither did the Ghana Commercial Bank, National Investment Bank and Tema Oil Refinery, among others.

The few that did, SAS inclusive, failed to pick all their rights; something Mr Iddrisu of EDC said does not speak well of the company’s management team, especially in the eyes of the shareholders.

While stressing his knowledge of Aluworks’ “excellent team of professionals,” Mr Iddrisu said the less patronage that the offer suffered could “send a signal to the general public that the shareholders don’t believe in the management team and their ability to turn things around when given the funds.”

That, he explained, could possibly lead to a loss of faith in the company by investors; both home and abroad.

ALUWORKS’ PREDICAMENT

Aluworks, which manufactures aluminium for the local and sub-regional markets, has been recording net losses over the past few years mainly as a result of interest expenses (from outstanding loans and overdrafts) and unfair competition from Chinese imports.

But as that happened, funds for investment  and expansion dried up, causing the company to request for the GH¢30 million from shareholders.

A document on its investment needs showed that it needed to inject about US$15 million into the business to help retire existing debts, increase working capital, refurbish a cold mill and construct a new warehouse between now and 2014.

On the way forward given the persisting need for more funds, the Head of Brokerage at EDC said the search for liquidity for Aluworks must be widened.

He, however, advised against going for debt, citing the company’s current dilemma with outstanding loans and overdrafts.

“I’m not sure debt will be the best way to go because if they do that, it will just wipe out shareholders value,” he said.

Aluworks’ MD, however, said the strategy to be adopted will be the sole prerogative of the board.

He added that government needed to implement the countervailing measures on aluminium from China as it was the surest way of salvaging the fortunes of the company.

Once the playing field is levelled, Mr Okoh said “Aluworks will begin to grow tremendously purely because our quality is so supreme and cheap pricing will no longer be a factor.”