A US investment fund plans to start actively marketing a new type of capital raising in the local market after completing its first deal with an Australian Stock Exchange-listed company.
A US investment fund plans to start actively marketing a new type of capital raising in the local market after completing its first deal with an Australian Stock Exchange-listed company.
Cornell Capital Partners provides an equity line of credit facilities that combine features of a traditional share placement with some of the flexibility of a banking line of credit.
Cornell Capital executive director and head of global capital markets Philip Ho said he planned to start actively promoting the fund to Australian companies.
“Our funding structure makes a lot of sense for junior mining companies,” Mr Ho said.
As well as mining and energy stocks, he said he also planned to market the product to healthcare and technology companies in Australia.
Cornell’s first ASX-listed client is Brisbane-based Queensland Gas Company, which has secured an $8 million equity line to help fund its coalbed methane developments.
Under the facility, QGC may issue shares to Cornell at any time over the next three years up to a total of $8 million.
The share issues are at QGC’s discretion, subject to a limit for any eight-day period of $120,000.
Two Perth firms have assumed prominent roles in Cornell’s Australian push.
Accounting firm Jackson Greeve has been acting as Cornell’s agent in Australia while law firm Jackson McDonald advised Cornell on the QGC deal.
Jackson Greeve partner John Greeve said Cornell’s equity line product offered an assured source of funding and was particularly suitable for emerging companies with long development plans.
Jackson McDonald partner Ken Mildwaters, who worked on the QGC transaction with fellow partners Adam Levin and Stephen Doyle, said the flexibility of Cornell’s product was one of its main attractions.
“The company retains complete control of the timing and amount of any drawdowns under the Cornell facility,” Mr Mildwaters said.
Mr Ho said equity line funding was becoming well established in the US.
New Jersey-based Cornell, which is managed by Yorkville Advisors LLC, has made available in excess of $600 million for 50 publicly listed companies.
Based on this success Cornell has been marketing the product in the UK for the past year.
Cornell has had mixed success in the UK, where its clients include New Millenium Resources NL, which is based in South Perth but listed on the London Stock Exchange’s Alternative Investment Market.
Mr Ho said New Millenium – which has encountered technical difficulties at its niobium exploration project in Greenland – presently had no intention to draw down its £4.5 million facility that was established last year.
He said the low trading volume in New Millenium stock meant that drawdowns would have depressed the share price.
Mr Greeve was a former finance director of New Millenium but left the company last year.
He explained that issuers would need substantial trading volume in their stock to support Cornell’s strategy of on-selling the shares it receives.
“Issuers should assume Cornell will sell all of the shares they get within the first 12 months,” Mr Greeve said.
He said Cornell would normally hold onto the stock it received after the first 12 months.
QGC managing director Richard Cottee said Cornell’s equity line was very suitable for his needs.
“Potential customers want to know how we are going to develop our resource,” he said. “This gives customers a lot of confidence that the money will be available.”
He said the equity line gave QGC substantial flexibility, in terms of both drawdowns and the freedom to use alternative funding sources.
“We don’t need to dilute [QGC shareholders] excessively and only as and when required
“This gives you comfort that no matter what your needs and no matter what the [market] cycle, you still have a fall-back position.”
Mr Cottee claimed the cost of funding through the equity line was comparable to a traditional share placement. The shares will be issued to Cornell at a 3 per cent discount to the prevailing market price and a commission of 5 per cent will be payable by QGC at the time of each issue.
