from the smh

Chemeq facing a wind-up
Vanda Carson
February 2, 2007

FINANCIALLY stricken pig and poultry drug maker Chemeq is facing liquidation or a "proxy takeover" after a court ruled the company had breached its contract with its bondholders.

A ruling in the West Australian Supreme Court means the company must repay $60 million to bondholders Harmony Capital Partners of Singapore and US hedge fund Stark Trading.

It has until Monday to decide whether it wishes to appeal against the decision.

The company issued the bonds two years ago in a last-ditch attempt to fund the development of a Perth factory and to take its anti-microbial technology through to commercialisation amid problems with regulatory approvals for its products.

Analysts doubt Chemeq can pay the money, saying the decision means the convertible bondholders will effectively gain control of the company's assets, the largest being its factory.

The company had a cash balance of just $13.7 million at the end of last year.

EG Capital investment analyst Patrick Potts said it was hard to see where the money would come from.

"I guess the assets of the company will be transferred to the holders of the bonds. Whether they liquidate will be up to them," he said.

The bondholders could always convert their holding to shares but, given the current share price of 20.5c, it is unlikely.

Chemeq shares have been in a trading halt since yesterday.

The court decision follows three months after the major bondholder, Stark Trading, complained Chemeq had defaulted on the bond contract because it had failed to achieve gross revenues of $4 million by the end of 2005-06. Stark argued it should be repaid by early November.

Chemeq was yesterday unable to comment.