Chemeq calling
NOT so, the Chemeq faithful. In the last episode of the Margin Call mini-series, "Chemeq", the hero was being dangled over a boiling vat of Chemeq's anti-microbial solution awaiting shipment to an unidentified multinational customer in South Africa.
Well, if you had to tune in to find out if Chemeq did have a customer, forget it -- there's been a twist in the plot.
It's been a white-knuckled ride since last year's $60 million recapitalisation ($40 million convertible bond issue in March 2005 and another $20 million in July on underwriting of a $2.40 option exercise that expired "well" out of the money).
The March convertibles had a floor price of 55c and the July tranche a floor of 60c. Chemeq closed at 50.5c yesterday, so the investors who took up their bonds may be thinking of exercising their rights under their bonds, which were originally unsecured, to become secured, thereby taking their place in the queue for the door. Unless Chemeq avails itself of another rabbit from the capital-raising hat.
"The holder may require Chemeq to provide fixed and floating charges over assets of the company upon 30 days' written notice."
If they do convert over to being secured and Chemeq cannot make good on the annual $5.1million in interest payments, then ordinary shareholders are not looking too flash. On November 1, the company got the holders to modify their covenants to Chemeq holding cash of at least $24 million and generating revenues of $4 million for the year to June 30.
At December 31 there was cash of $41.7 million and net assets of $17.7 million, which means the bond holders can bid au revoir to the ordinary shareholders if Chemeq dusts another $17.7 million (giving a cash balance of $24 million). On current cash burn (January $2 million) that is nine months, which gets them to the June 30 deadline by the hair of their chinny-chin-chin.
If you're wondering why the stock tanked this week, wonder no more. Wonder only when Team Chemeq will coming a-knocking for yet another top-up.
http://www.theaustralian.news.com.au/common/story_page/0,5744,18340348%255E16942,00.html
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