Debt-burdened Sanctuary Group plc is close to reaching agreement on an equity fund raising that would help secure its immediate future, the British independent music group says.
However, news of a potential cash injection was accompanied with a stark set of results which reveal a five-fold increase in group losses over the past year.
In a statement issued after the London Stock Exchange closed Friday (Jan. 27), Sanctuary said it had received indications of support for an equity fund-raising of about £110 million ($195 million), but warned it would be at a substantial discount to its current share price.
In early trading today, Sanctuary shares fell 19% to less than 1 penny, valuing the group at around £3 million ($5 million).
The company also said it had reached an agreement in principle with its main lender, which would involve the cancellation of £35 million ($62 million) of debt.
“The group is close to implementing a significant equity fund raising through Evolution Securities Limited who have agreed to become broker to the company and who have received indications of support for an equity fundraising of £110 million from institutional investors,” Sanctuary said in its preliminary full-year financial report.
Sanctuary had announced last December that it had hired Evolution Securities, the investment bank business of London-based financial services firm Evolution Group, to explore a “significant” equity fundraising.
The proposed fund raising is expected to “repair the group’s balance sheet and create a stronger foundation for the business going forward,” the company adds.
For the year ending Sept. 30, 2005, the company’s balance sheet carries a group loss of £142.6 million ($252 million), up from £26.7 million ($47 million) in the corresponding period a year earlier.
At the same time, net borrowings almost doubled to £140.4 million ($249 million) from £73.9 million ($131 million).
In the statement, Sanctuary founder Andy Taylor acknowledged that the past 12 months had been the “most difficult and challenging period” in the company’s history. “Despite the awful year that we have had, we are looking to the future with confidence,” he says in the statement.
Following a rocky financial period punctuated with job cuts, growing debt and the disposal of non-core assets, Sanctuary has confirmed that it has shuttered its Urban Records division.
Sanctuary blamed the Urban unit for contributing to “substantial losses” within the company’s Recorded Product division in its most recent financial year.
Sanctuary signaled its entry into the urban music space with the £6.6 million ($10 million) acquisition of Mathew Knowles’ Music World Entertainment in September 2003. Simultaneous with that announcement, Knowles was appointed president of Sanctuary’s new urban and gospel division.
