Childcare centre operator G8 Education Ltd (ASX: GEM) put its shares into a trading halt this morning. Would-be significant shareholder, Hong Kong-based CFCG, has requested an extension on the time frame required to stump up cash for a significant stake in G8.
In February it was announced that CFCG would buy $213 million worth of G8 Education shares at above the market price. $64 million was committed in February, and the balance of $149 million was due today. It seems that CFCG has not yet been able to provide the cash, and asked for an extension.
With the trading halt due to be lifted on Friday, it seems as though the issue could be resolved quickly. Alternatively, it could be a prelude to a longer share suspension if CFCG needs more time to come up with the money. And, in the worst case scenario, CFCG could theoretically find itself unable to raise the capital and unable to meet the terms of the agreement.
Trouble for G8?
That would put G8 in a bit of a bind, since the proceeds from the share issue are earmarked for $90 million repayment of bond and debt facilities, with the bonds due for repayment in February 2018. The remainder of the funds are to assist in the purchasing of committed childcare centre purchases over the next 2 years.
This means that G8 has already agreed to buy the centres, but now has discovered that part of its funding for these purchases is not in place. However, should the CFCG deal fall through, G8 will surely be able to sell its shares to another player on the market, although this will likely be at much lower prices. That would not be ideal for shareholders, although it would take some pressure off the company. Either way, I imagine all will be revealed in the next few days as G8 updates the market.
