3rd Feb 2014 12:47
LONDON (Alliance News) - LED International Holdings Ltd Monday reiterated that it will try and raise CNY31 million from two investors in an attempt to secure its immediate future and fund its new lease financing unit, warning its shareholder that if they don't approve the CNY25 million placing part of the deal, they may see the value of their shares wiped out.
The energy saving products company had announced a proposed capital raising at the end of December after its energy management contract business plan was delayed.
In its statement Monday, it said it will offer nearly 3.9 million shares in the subscription at HKD10.29 each. Of those, 750,000 shares will be allotted under the conversion. Gross cash proceeds from the placing, which needs to be approved by LED's shareholders, will be CNY25 million.
LED international provides energy management contracts under which it replaces traditional lighting and power consumption units with products like LED lighting and reactance filtering. The company bears upfront costs, which it then recoups by taking a share of the energy savings the customer makes. This means it has recurring revenues, rather than just individual contract revenues.
However, it is loss-making, even though sales are rising, and it is running out of cash. The company borrowed CNY6 million in December from Rubyfield Holdings Ltd and Speedy Dragon Holdings Ltd under a working capital loan, and said at that time it would raise CNY25 million through a subscription with those companies. The placing and the loan proceeds combined total CNY31 million.
"The directors are of the view that the subscription and the conversion will give the company sufficient working capital for the next 12 months. However the company's growth is difficult to predict and if it were to grow faster or slower than anticipated, or in the event of unforeseen circumstances further capital may be required," it warned in a statement.
It said it had decided to propose a subscription and conversion offer to a few investors rather than an open offer to all shareholders because the additional costs and delay involved in a wider offer would not have been in its best interests.
It had a further warning for shareholders, who must now approve the deal.
"Shareholders should be aware that if all the resolutions are not passed, the subscription and the conversion will not proceed and the company would not be able to make the necessary capital contribution to Green Pearl Leasing. The company would then need to secure alternative funding in the near future which may not be forthcoming and in this event, the directors may be required to take action which would result in the value attributable to shareholders being severely reduced or becoming nil," it said.
Green Pearl Leasing is a new subsidiary it set up that will provide lease financing to customers. It has been awarded a leasing finance license, but was required to contribute 20% of the subsidiary's CNY100 million registered capital within three months of the license being approved. It has to contribute the remaining money within two years of the approval.
The annual general meeting to approve the proposed placing will take place February 26.
LED International shares were up 9.4% at 0.29 pence Monday.
By Steve McGrath; [email protected]; @SteveMcGrath1
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