Tims China Announces Significant Financing from Founding Shareholders

Rhea-AI Summary

Tims China, the exclusive operator of Tim Hortons coffee shops in China (Nasdaq: THCH), has secured up to $65 million in financing from founding shareholders Cartesian Capital Group and Restaurant Brands International (NYSE: QSR). The financing package includes $50 million in convertible notes, with $40 million issued at closing and the remaining amount to be funded over the next 7 months, contingent on certain conditions. The three-year notes can be converted into convertible preferred shares, which subsequently convert to ordinary shares at a 10% premium to the volume-weighted average price (VWAP) of the five preceding trading days.

Additionally, RBI has acquired the Popeyes China business from Tims China for an enterprise value of $15 million on a cash-free, debt-free basis. To settle deferred consideration to former Popeyes China shareholders, Tims China issued a $15 million convertible note with similar conversion terms. CEO Yongchen Lu highlighted that this funding package strengthens Tims China's balance sheet and supports growth in their core Tim Hortons brand.

Positive

• Secured up to $65 million in financing from founding shareholders.
• Included $50 million in convertible notes with $40 million issued at closing.
• RBI acquired Popeyes China for $15 million.
• Extinguished deferred consideration to former Popeyes China shareholders with $15 million convertible note.
• Improved balance sheet and growth potential for Tim Hortons brand in China.

Negative

• None.

Financial Analyst

Tims China securing $65 million in financing is a significant development. The use of convertible notes is particularly noteworthy. These are debt securities that can be converted into a predetermined number of the company's shares, typically at the discretion of the investor. In this case, the notes are convertible into preferred shares, which then convert to ordinary shares based on the recent average share price. This structure is beneficial for investors as it provides the option to convert into equity, potentially at a favorable price, offering upside if the company's stock performs well.

The funding from founding shareholders like Cartesian Capital Group and Restaurant Brands International highlights their continued confidence in Tims China's business model. It also indicates a commitment to support the company's long-term strategic goals in the competitive Chinese market.

From a cash flow perspective, this financing will immediately fortify Tims China's balance sheet, providing the necessary liquidity to navigate any short-term operational challenges and invest in growth initiatives. However, investors should also be aware of the potential dilution of their shares when these notes convert into equity, which can impact earnings per share (EPS).

Acquiring the Popeyes China business debt-free and cash-free at an enterprise value of $15 million is another strategic move. This acquisition could bring in synergies and diversify revenue streams. But it also raises questions about the efficacy of focusing on multiple brands in a highly competitive environment.

Market Research Analyst

The financing move will allow Tims China to intensify its focus on the Tim Hortons brand, which is important given the competitive landscape of the Chinese coffee market, dominated by local giants like Luckin Coffee and international players like Starbucks. The additional liquidity will enable Tims China to potentially expand its store footprint, enhance its digital presence and invest in marketing—critical components to capture a larger market share.

The convertible note structure is a savvy choice in this scenario because it aligns the interests of the investors with the company's growth. If Tims China performs well, the conversion into shares at 110% of the VWAP can be highly lucrative, motivating the investors to support the company proactively.

However, the increased focus on Tim Hortons implies that the company sees greater potential and less operational complexity compared to managing multiple brands. The sale of the Popeyes China business, albeit strategic, suggests that Tims China is streamlining operations to concentrate its resources more effectively. This can be positive for operational efficiency but also indicates a retreat from diversification, which could limit long-term growth avenues if the Tim Hortons brand fails to meet expectations in the region.

Legal Expert

The convertible notes and subsequent issuance of preferred shares come with various legal implications that investors should note. The conversion terms set at 110% of the VWAP for the 5 trading days prior to closing offer a cushion against immediate volatility but also tie the conversion price to market performance, protecting against potential underpricing at issuance.

Additionally, extinguishing deferred consideration due to former shareholders of Popeyes China through a convertible note issuance simplifies the company's existing obligations and aligns it with the current financing structure. This move essentially shields Tims China from immediate cash outflows, preserving liquidity for other operations or growth initiatives.

However, these convertible notes will eventually convert into equity, leading to a dilution of existing shares. This could impact the decision-making power of current shareholders and change the dynamics of shareholder voting on significant corporate actions.

Investors should also closely review the upcoming 6-K filing for detailed terms and conditions. This document will provide essential information on the legal frameworks and obligations attached to this financing, giving more clarity on the long-term implications for the company's equity structure.

SHANGHAI, China and NEW YORK, July 01, 2024 (GLOBE NEWSWIRE) -- TH International Limited (“Tims China” (Nasdaq: THCH)), the exclusive operator of Tim Hortons coffee shops in China, secured an aggregate of up to $65 million of financing and additional funding from its founding shareholders, Cartesian Capital Group, LLC (“Cartesian”) and Restaurant Brands International Inc. (“RBI” (NYSE: QSR)).

The financing includes $50 million in convertible notes, of which $40 million was issued at closing, with the balance to be funded over the coming 7 months, subject in each case to certain conditions. The three-year notes are convertible into newly issued convertible preferred shares of Tims China, which convert to ordinary shares at a price per share based on 110% of the VWAP for the 5 trading days immediately prior to closing of the transaction.

In addition, through one of its foreign entities, RBI has acquired the Popeyes China business from Tims China on a cash-free debt-free basis for an enterprise value of $15 million. Simultaneously, Tims China has extinguished the deferred consideration due to former shareholders of Popeyes China via issuance of a $15 million convertible note, which converts directly into ordinary shares with financial terms similar to those outlined above.

Yongchen Lu, CEO of Tims China, said, “We are pleased to announce this major funding package, which underscores the commitment of our founding shareholders to this dynamic business. This year will be a pivotal one for us, and fortifying our balance sheet is an important step forward towards ensuring our long-term success in this highly competitive market. This transaction enables us to drive growth in and intensify our focus on our core Tim Hortons brand.”

More details of these transactions will be presented via a 6-K filing with the SEC which will be available on the website of the SEC not later than July 1, 2024.

ABOUT TH INTERNATIONAL LIMITED

TH International Limited (Nasdaq: THCH) (“Tims China”) is the parent company of the exclusive master franchisees of Tim Hortons coffee shops in mainland China, Hong Kong, and Macau. Tims China was founded by Cartesian Capital Group and Tim Hortons Restaurants International, a subsidiary of Restaurant Brands International (TSX: QSR) (NYSE: QSR).

The company’s philosophy is rooted in world-class execution and data-driven decision making and centered around true local relevance, continuous innovation, genuine community, and absolute convenience. For more information, please visit https://www.timschina.com.

Forward-Looking Statements

This press release includes forward-looking statements, which are often identified by the words "may," "might," "believes," "thinks," "anticipates," "plans," "expects," "intends" or similar expressions and include statements regarding (1) expectations regarding whether the full amount of Tims China convertible notes will be purchased, and (2) expectations regarding the ability to drive growth at Tims China. These forward-looking statements may be affected by risks and uncertainties in the businesses of RBI, Popeyes China and Tims China and market conditions, and include the following: (1) the risk that the conditions to the additional convertible note purchases will not be satisfied, and (2) risks related to competition, macro-economic factors and general risks of doing business in China. This information is qualified in its entirety by cautionary statements and risk factor disclosures contained in filings made by Tims China with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F for the year ended December 31, 2023. Tims China cautions readers that certain important factors may have affected and could in the future affect actual results and could cause actual results for subsequent periods to differ materially from those expressed in any forward-looking statement made herein. Tims China does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date hereof.

Contacts

Investor Relations
IR@timschina.com or Gemma.Bakx@cartesiangroup.com

Public Relations
patty.yu@timschina.com

Follow @TimHortonsChina

FAQ

What recent financing did Tims China secure?

Tims China secured up to $65 million in financing from founding shareholders Cartesian Capital Group and Restaurant Brands International.

What are the details of the $50 million financing for Tims China?

The financing includes $50 million in convertible notes, with $40 million issued at closing and the remainder to be funded over 7 months, convertible into preferred shares and then to ordinary shares at a 10% premium to the VWAP of the previous five trading days.

How much did RBI pay for Popeyes China?

RBI acquired Popeyes China for an enterprise value of $15 million on a cash-free, debt-free basis.

What is the ticker symbol for Tims China?

The ticker symbol for Tims China is THCH.

How did Tims China settle the deferred consideration to former shareholders of Popeyes China?

Tims China settled the deferred consideration via a $15 million convertible note, which converts directly into ordinary shares with similar financial terms to the other convertible notes.

When will more details on the financing be available?

More details will be available on the SEC website via a 6-K filing not later than July 1, 2024.