WHILE the market has watched the US Government pledge trillions of dollars to bail out its struggling banks, Ceramic Fuel Cells chair Jeff Harding has worked on his own miracle recovery.
But the recovery has come at a big cost. Shareholders yesterday had to approve a massive increase in shares on issue, and potentially a massive dilution, to raise another $30 million.
In the process, the number of shares on the issue for the $43 million company have increased from 344.7 million to a billion.
Its share register includes some big names, such as Woodside Petroleum and Energex, along with long-time Harding backers such as AFL chair Mike Fitzpatrick.
Fitzpatrick backed Harding's Pacific Hydro in his Hastings Funds management days. Pacific Hydro is now owned by Industry Funds Management.
The extra funds were needed because a $90 million equity raising more than two years ago has disappeared.
Just why and how the money has gone may now be the subject of litigation between the company, its financial adviser Oakvale Capital, rating agency Standard & Poor's and issuing banks such as Germany's West LB and others.
The potential legal action was disclosed yesterday about the time shareholders approved a $20 million placement to mainly British investors amid a $10million rights issue.
The funds were invested in a range of what are now commonly called toxic debt products, which arguably were not suited to the company's needs.
David Curruthers, a former director and audit committee chair who helped arrange Oakvale's appointment, resigned with "mutual agreement" from the Ceramic board last October.
Paul Travers from Oakvale yesterday told The Australian the company had a business partnership with Curruthers.
He declined to comment further on the issue or the Ceramic claims.
Litigation funders IMF have agreed to fund a potential case, obviously sensing the chance for a landmark suit about how the financial crisis hits innocent victims.
In this case, it is an Australian company on the verge of commercialising breakthrough technology that converts gas into electricity.
Designed by the CSIRO in 1992, the fuel cells -- the size of a small filing cabinet -- provide enough energy to power your house fully, return that amount back to the national electricity grid and cut Victoria's carbon dioxide output by 18 tonnes in the process.
The units will cost $10,000 and the Melbourne-based company is promising a five-year payback.
But first it must get to commercial production, which is due to start next year, once a plant to be built outside Dusseldorf in Germany starts operating in October. After raising $90 million in 2006 with a British AIM listing, the company handed Oakvale a brief to manage the money for three years.
This was intended to cover the company until it become cashflow-positive late next year.
Oakvale was given cashflow projections and currency needs. According to Ceramic, the investments may have satisfied the instructions as far as currency exposure was concerned -- but not as far as the duration was concerned.
The investments were in a range of collateralised debt obligations and other products from a range of banks including West LB, Citibank, Morgan Stanley and Goldman Sachs.
They were rated triple A. The the rating on one from West LB suddenly went from AA to CCC, and a $15 million investment was worthless overnight.
In all, the company has written down the value of the $90 million raised less than two years ago to $7million.
This explains why Harding has had to rush to raise more capital, and of course, like any start-up company, its survival is still not guaranteed.
It was hit with other issues amid the funding problems, with one large shareholder selling down aggressively.
A proposed business partner, Nuon, pulled out recently because it was taken over by Sweden-based Vatenfall. The Swedish company was more interested in big commercial developments.
It's still early days for any litigation, but Ceramic's woes show the aftermath of the financial crisis is just beginning.
CFU Price at posting:
7.4¢ Sentiment: None Disclosure: Held
