Hygrovest Ltd (ASX:HGV) will support proposed changes to the terms of unsecured convertible debentures issued by Entourage Health Corp (ENT) that would allow the company to dispose of its investment in ENT convertible debentures above current book value.
In particular, the sale will advance the maturity date to June 30, 2022 and reduce the redemption percentage from 100% to 60% of the nominal value.
If the meeting of ENT noteholders approves the changes, ENT will repurchase the notes from Hygrovest for C$3.6 million plus accrued interest on or about June 30, 2022, representing a premium to the carrying value of HGV of C$2.5 million as of April 30, 2022.
“The divestment of HGV’s investment in ENT at a significant premium to our book value is an important step in realizing HGV’s underperforming cannabis investments and applying these funds to sectors that have higher growth prospects,” said Peter Wall, non-executive chairman of HGV.
Hygrovest made its initial investment in ENT in September 2019 and now has a current book value of C$2.5 million comprising:
- C$6 million in 8.5% unsecured convertible debenture units issued by ENT that HGV has the option to convert into 3.75 million shares by the maturity date of September 25, 2022.
- Bond units take priority over common stock with interest paid to HGV on a semi-annual basis.
- The market value of the tickets is calculated by multiplying the 6 million Canadian dollars by the market price divided by 100.
- Listed warrants that allow HGV to acquire an additional 3.75 million shares for C$1.80 each by September 25, 2022.
The sale was brokered by Parallax Ventures Inc, on behalf of Hygrovest
Based on the approval of the resolutions by the ENT bondholders, Hygrovest will have generated a loss of 18% on the initial investment (after taking into account cash interest received).
Although the investment return was well below expectations at the time of the initial investment, it should be noted that the return is significantly higher than that of the publicly traded Canadian cannabis sector, which has declined by approximately 70% since January 2020.