ON THE REBOUND? Snaige executives are hoping that last year's increase in refrigerator sales signals a turning point in the company's fortunes, which have suffered in recent years due to the weak dollar.
VILNIUS - The Baltics' only refrigerator manufacturer, Snaige, has completed an issue of convertible bonds, worth some 6 million euros, in a unique financial deal for the Baltic markets.
The bonds, which have an interest rate of 14 percent, and were placed March 15 's April 4, were completely sold, the Orion Securities brokerage said. Existing shareholders had a preemptive right to acquire shares in the placement, which amounted to 20 million litas (5.8 million euros).
Snaige expects to make 17.4 million litas from the issue, according to the prospectus.
Convertible bonds are a hybrid security combining features of both equity and debt. The provide fixed income for a period of time 's usually at a rate lower than what the debt market offers 's but are eventually transformed into corporate stock at a predetermined ratio.
In Snaige's case, the bonds will be converted to common stock at a ratio of 1:18 on April 6, 2009.
Usually companies opt to issue convertibles when they already have too much debt on their books but don't want to dilute share value in the short-term.
No doubt, Snaige is burdened with long-term debt, and the company stated in the prospectus that it would use part of the funds to refinance part of this debt. This year alone the company must return 51 million litas to creditors, including 20 million litas to Hansabankas.
Over the past several years Snaige has been hit by a combination of a sagging dollar and weak sales. The major opening of a new assembly plant in Kaliningrad in 2004 failed to meet expectations, executives have said.
In December CEO Mindaugas Sestokas was quoted as saying that "Russia is Russia, and it is rather difficult to get a foothold in the market of that country." He said Snaige had 2 percent of the neighboring market.
He also said that since the Russian and Ukrainian market are competitive the company could not raise the prices for its products despite a fall in the dollar.
On the bright side, sales have climbed recently.
The company announced on April 7 that 657,500 refrigerators were sold last year, up 15.3 percent year-on-year. Sales increased 16.8 percent to 410.8 million litas, while unaudited consolidated earnings before interest, taxes, deterioration and amortization rose slightly, by 1.7 percent, to 13.9 million litas in 2007.
Still, the company is in the red. Last year's losses amounted to 9.7 million litas, down from 10.5 million litas in 2006.
Looking ahead, this year the company intends to invest in the development of new products and technologies and introduce new equipment.
The company is now launching the arrangements for the introduction of so-called No Frost and Zero Zone technologies in 2009, which are expected to give an additional impetus for the growth of unit sales.
Snaige's largest shareholders include Survesta, a company controlled by Hermis Capital, with a 20.7 percent stake, customers of Estonia's Hansabank (47.39 percent) and customers of Sweden's SEB (10.65 percent).
Snaige's headquarters is in Alytus, in southern Lithuania, where it began producing refrigerators in 1963.