Shares in non-bank finance provider Duke Royalty (DUKE:AIM) fell 4% to 36.7p after the firm revealed it had sold its investment in a river cruise business for a loss and was simultaneously raising fresh capital.

Duke, which normally lends to businesses in exchange for a royalty on their earnings, took the unusual step of taking physical ownership of three Rhine and Danube cruise boats from long-term royalty customer Temarca BV last November after the cruise industry took a hammering over the summer due to the pandemic.

BAILING OUT

However, with no light at the end of the tunnel for the cruise business, Duke decided to cut and run, selling the three vessels – named Carmen, Rigoletto and Verdi – to charter operator Starling Fleet Holding for €11.9 million. The deal is structured as a loan with Starling paying €5 million this September, €4 million next September and €2.6 million in two years’ time, plus interest.

Duke said the sale would allow it ‘to redeploy the cash consideration in its core corporate royalty investment model and is preferable to direct ownership of assets with uncertain short-term cash flow prospects’. However, it added, ‘The sale results in Duke generating a -2.0% IRR based on a total investment of €15.0 million into Temarca’.

LARGE CAPITAL RAISE

Given that the proceeds of the sale won’t begin to flow through for six months, the firm decided to go to the market and raise £32 million through a placing of 91.4 million new shares at 35p each. There is also a placing of 8.6 million new shares via PrimaryBid which aims to raise a further £3 million.

The firm said the proceeds of the capital raise, which equates to just under 39% of its existing share capital, will be used to fund investments in one existing royalty partner and two new partners, as well as to fund ‘the longer-term pipeline of future royalty investments’.

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Issue Date: 01 Apr 2021