Market News 7 April 2026

Johnny Lee writes:

KMD Brands has found itself at a major crossroads this week, following the announcement of a massively dilutive capital raising to shore up its balance sheet.

KMD Brands, formerly known as Kathmandu, is raising $65.3 million from new and existing shareholders at a value of only 6 cents per share (NZD). This will mean the addition of over a billion new shares, to its already 711 million shares on issue.

The specific ratio applied to the offer is 1 new share for every 0.73 existing shares held, meaning a shareholder with 1,000 shares is entitled to 1,369 additional shares at a cost of $82.14. The capital raising is being conducted as an “AREO” or accelerated renounceable entitlement offer. The offer opens on the 7th and closes on the 16th of this month.

The renunciation refers to the shortfall bookbuild occurring at the end of the process. There will be no public listing of the rights. Today, such listings are rare and generally viewed unfavourably by issuers compared to a bookbuild process.

Kathmandu’s story on our exchange has been a less than positive one. Founded by Jan Cameron and John Pawson, Cameron later sold her stake in the company to Goldman Sachs JB Were and Quadrant Private Equity in 2006, reportedly for $275 million. Jan Cameron, who was appointed a Companion of the New Zealand Order of Merit in 2010 for services to business and philanthropy, was found guilty in a Hobart court in 2024 of making a false or misleading statement and disqualified from managing companies for five years.

Kathmandu dual-listed across the NZX and ASX in 2009, with Goldman Sachs JB Were and Quadrant Private Equity selling their stake to the public at a valuation of around $420 million.

Today’s valuation, post-dilution, is nearer $100 million.

Of course, the world is a very different place since 2009. Prior to COVID, the company was profitable, paying consistent, growing dividends and even managed to attract investment from major retailer Briscoes, which took a 19.9% stake in the company back in 2015.

COVID, unfortunately, changed the company’s trajectory entirely. The share price fell 75% in the space of a month, and while it did see the same post-COVID recovery that most shares enjoyed at that time – fuelled by a very low-interest rate environment – it never found its footing and has been in constant decline since 2022. No dividend has been paid in the last two years.

All of this background brings us to the aforementioned crossroads.

A capital raising at 6 cents may signal desperation for some shareholders and is obviously not the action of a company with multiple options. KMD Brands needs to rebuild its balance sheet, in the hope of a better tomorrow.

6 cents may also reflect the cost of underwriting. The offer is fully underwritten, meaning that the company will raise the $65 million regardless of existing shareholder support.

However, even 6 cents was not enough to garner full support. The institutional placement, which closed last week, received only 79% take up. Retail shareholders will need to apply for the shortfall, or the underwriters will be writing a cheque.

Early market response has been positive. KMD shares are out of trading halt and are changing hands above 9 cents, a 50 percent premium. With the shares now trading ex-rights, shareholders now have the option of selling their shares at this higher price and buying them back in the 6 cent offer.

These steeply discounted capital raisings – usually followed by a significant share consolidation – can work. Sky Television would be a recent example, when it raised $157 million at 12 cents per share, then initiated a ten for one consolidation shortly after. The shares now trade north of $3 and pay dividends twice a year.

For those shareholders who believe in Kathmandu and a retail sector rebound, the opportunity to help rebuild its balance sheet at a price of 6 cents per share will be compelling. At 6 cents per share, 1.7 billion shares imply a valuation of barely $100 million. Just 3 years ago, Kathmandu posted a net profit of $40 million. By most definitions of the word, 6 cents per share feels cheap. Indeed, 6 cents per share was the 2023 annual dividend, although this was paid on a smaller number of issued shares.

However, the opposing view simply needs to look around the market. The retail sector is clearly undergoing a period of significant, structural change, and consumer confidence in equity markets has tumbled since the start of the recent conflict in the Middle East. Investors with a heavy exposure to retail have had a mixed bag over the last few years, with Hallenstein Glasson doing much of the heavy lifting for the sector.

Some directors have already confirmed their participation, with outgoing Chair and former All Black captain David Kirk committing to apply for an oversubscription in the offer.

KMD Brands shareholders have a decision to make. With a share price at record lows, this is not an instance of a company raising capital to invest in the business. Instead, this money will be used to fix the company’s balance sheet and give it a chance of survival.

With underwriters already on board, the funds are secure. The question for shareholders is whether they will commit further to the company and see if the business can turn itself around. The offer is open now and closes on the 16th. Applications should be made online.

The capital raising was not the only announcement from KMD Brands last week. The retailer also announced its first half results for the 2026 financial year.

The company reported a $13 million NPAT loss for the half. Last year's figure was a $20 million loss. Both Kathmandu and Oboz produced negative earnings, but both improved on last year. Ripcurl was again the sole positive contribution, but saw its earnings decline.

While sales were stronger, margins remain under intense pressure across the business, with consumers clearly feeling the pinch at the moment. This has been a common theme with retailers this year, with many forced to steepen discounts to move stock.

The company continued its “Next Level Journey” strategy. While the headline of 15 store closures and 10 senior staff changes may look grim, the company is determined to cut costs as part of its strategy to survive the current economic difficulties.

Outlook was modestly positive. The first six weeks of second half have been positive compared to last year, with both sales and margins modestly higher.

The strategy now is to buy time for these conditions to ease and consumers to re-engage with local retailers. The capital raise will give the company time. The question is whether shareholders will support this strategy, after a torrid period of underperformance from the company.

Local Government Funding Agency

LGFA has set its interest for its 8-year bond at 4.75%. These bonds are AAA rated by S&P and mature on the 15th of May 2034. Clients interested in this bond are welcome to contact us.

Travel

13 April – Taupo – Johnny Lee

14 April – Hamilton – Johnny Lee

15 April – Tauranga – Johnny Lee

16 April – Lower Hutt – David Colman

17 April – Napier – Johnny Lee

22 April – Auckland (Ellerslie) – Edward Lee

23 April – Auckland (Albany) – Edward Lee

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