First published in The Briefing (Feb 20th 2023)
It’s been the beginning of redemption for Ryman Healthcare this week. Redemption is in the form of a long-expected capital raise, Ryman’s first since listing, with the aim of reducing it’s significant debt burden and strengthening the company’s balance sheet.
We’re pleased to see that the company is utilising an entitlement-based offer to raise capital – a methodology that reflects the company’s scale and offers fairness to its many retail shareholders. This certainly seems a more sustainable solution than the frankly ‘odd’ establishment of an underwritten dividend reinvestment plan late last year. For a DRP to be underwritten calls into question whether a dividend should be paid at all.
Some in the media are starting to probe Ryman’s foray into the US Private Placement (USPP) debt market, given that the company is using the proceeds to repay this (long-dated) debt. We welcome the scrutiny – while the decision to repay may be the right one, there may be lessons for shareholders (and Ryman) about the decision to use the USPP market in the first place.
At a more systemic level, we believe that the ‘sacred cow’ associated with Ryman’s decision to not raising capital earlier has led to significant value loss for shareholders. It’s probably not a coincidence that Ryman’s Board (prior to changes made during 2022) contained a majority of long-serving directors. Even now, most of its 7 directors were appointed in 2014 or prior.
NZSA looks at Director Tenure as part of its assessments. We have a ‘risk-balanced’ approach to this; while a brightline test of 9-12 years forms a guideline, we also take into account specific skills, the risk of a sudden loss of knowledge and succession risk. Simplistically – we look for balance. Ryman’s did a great job in pioneering the retirement village model in New Zealand. However, the pride of the Board in never raising capital became a noose around its neck. It took a change in Chair in 2022 for that position to be reviewed.
We think Ryman’s is a case study that highlights the value of regular renewal on a company’s Board, to create a balance of institutional knowledge infused with fresh thinking.
For the sake of future shareholder returns, we hope that Ryman’s Board sees it that way too.
Oliver Mander