JJB recently commenced talks with shareholders to raise finance of £31.5m desperately needed to service its business obligations for the next couple of months. The shareholders have now approved the cash call therefore the business has announced an initial 630m shares available to public investors. The shares will be issued by way of placing shares i.e. issued to existing public institutional investors already in contact with JJBs' brokers.
This, in my opinion is JJBs' best shot at survival as most other methods of raising finance would not favour the company as much as this would. The major options available to JJB are loans, debentures or issueing bonds or shares. Out of all these methods, issuing shares is most suitable as it's nature of commitment to investor is less than the other methods. Loans, debentures and bonds all require regular interest payments to investors, this will pose a problem for JJB if it pursued such financing methods as it can't even meet it's interest obligations as it is due to several economic and performance issues.
Also, if these methods are pursued, it's almost certain that interest rates will be quite high due to the business poor performance. It's no news the kind of store closures JJB has announced and it's share price has fallen over 90%. The business is trying to claim it's second CVA (Company Voluntary Arrangement) - This is a legal agreement with landlords that allow businesses slash their rent costs. Therefore, investors are quite doubtful as every investor is after earnings and not loss.
In conclusion, the £31.5m will only last the business until late March to April 2011, therefore it will be back looking for finance in the near future if nothing is done. The business has therefore announced huge cuts in it's business dealings and made it clear that it's moving towards sports wear specifically, without any diversification until further notice. I believe with the right cuts made and a good strategy forged ahead, JJB is bound to exit its downturn, as it has good advocates who are willing and believe they will make enough earnings on their investments.
Dont you think JJB should attempt to acquire some sort of longterm debt financing? Long-term debt financing has a longer payback period and in some cases a longer grace period to start paying installments, with that being said, JJB would have the chance to stand up on its it feet again, since the amount they acquired would last them until April, and they would put more efforts to acquire additional funds.
ReplyDeleteI agree but in as they are already owing so much and they are finding it hard to settle their interest payments as it is. I doubt they will find any good deal, if they find any at all, so the share issue still looks like the best option.
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