Rakon raising $65m for China push, selling shares at discount

Rakon managing director Brent Robinson. Photo supplied.

Rakon, the manufacturer of components for navigation devices, plans to raise $65 million selling shares at a deep discount to expand its Chinese manufacturing operations.

The capital raising will comprise of a $45 million underwritten institutional placement at a 26 per cent discount of $1.10 per share and a $20 million share purchase plan at the lower of either the placement price of 2.5 per cent below the average end of day market price over the five trading days immediately before the closing date of the offer.

"It's a big ask if Rakon wants to raise $65 million - Tower just raised $100 million and it's a far more diversified company," said Alan Moore, who helps manage around $300 million at Milford Asset Management. "$65 million for a company the size of Rakon is a lot of money."

Rakon's capital raising target amounts to 35 per cent of its $186 million market value, while Tower's $100 million raising is equivalent to 4 per cent of its market cap. Rakon joins a growing list of corporates, such as Nuplex Industries and Tower in raising capital this year as the global economic slump and credit crunch spur companies to cut debt and strengthen their balance sheets. This year some $5.02 billion in debt and equity sales, a 91 per cent increase on the same period a year earlier, according to NZX data.

Some $30 million of Rakon's capital injection will be used for the first construction stage of a new Chinese manufacturing factory with joint venture partner Timemaker. Additional funds will be used to repay debt and settle its outstanding $6.3 million deferred consideration with its Chinese partner.

Trading in the shares was halted at the company's request, and will resume after the completion of the first tranche of the placement tomorrow. The stock closed at $1.49 on the NZX yesterday, and has climbed 14 per cent this year.

Moore said one of the problems with Rakon's shares is that they are illiquid: "It's not easy if you want to get in, or if you want to get out."

Managing director Brent Robinson said the Chinese expansion was put on hold last year due to the world economy tumbling into its deepest recession since World War II. As sales bounced back faster than anticipated, the proposed expansion plans were revived.

"The scale of earnings growth opportunities in front of us, and the speed at which they are developing, gives us confidence that now is the right time to proceed," Robinson said in a statement.

The company was forced to slash costs this year after it posted a 59 per cent slump in full-year earnings as the global economy fell into a downturn. It reduced its New Zealand workforce by 10 per cent in November and cut its manufacturing capacity 20 per cent for eight weeks between February and April.

Rakon now expects this year's second-half earnings before interest, taxation, depreciation and amortisation to be between $4 million and $8 million, inclusive of a first half loss of $3 million to $4 million. It forecasts this to grow to between $30 million and $35 million in 2011.

Rakon founder Warren Robinson will participate in the share purchase plan, and will be issued $1 million worth of shares immediately before the placement. The offer was also endorsed by director and share-holder Peter Maire.

- BUSINESSWIRE