Rewards seeks $45m from Asia

Perth-based MIS player Rewards Group is seeking $45 million from private investors after an eventful few weeks which have seen it end merger discussions and pull a proposed $28 million IPO.

The funds are to be used in the first instance to pay out about $20 million in bank debt as well as help provide capital to fund this year’s proposed MIS raising and see the company through until its forestry assets reach harvest.

The latest fund raising effort is being lead by Argonaut Securities, which also had the mandate for the IPO until market jitters on the back of bad news coming out of the US and Greece sent the group back to the drawing board.

The groupis set to embark on a road show to Singapore and Hong Kong to promote the raising to private investors. The group claims to already have a cornerstone investor set to take 25 per cent stake as part of the raising which, if successful would represent close to 50 per cent of the equity in Rewards.

The selling point for Rewards is that while the failure of Great Southern and Timbercorp had caused significant pain in the market and prompted banks to withdraw from the sector, there was a big opportunity for a forestry-focused group to move into the void created by the collapse of the biggest MIS players.

Joint managing director Andrew Radomiljac confirmed the company had been working since late last year with its key financier National Australia Bank to clear the debt.

“We have a great relationship with our bankers,” Mr Radomiljac said.

“Our debt position is very low but this space is not where they want to be through no fault of our own.

“We have discussed with NAB a plan to get down to zero and they have been very supportive of that.”

Mr Radomiljac said under the terms of the IPO the bank would have been repaid in a stepped process but the market turbulence from Greece and US president Barak Obama’s comments on the banking sector had caused that plan to be shelved.

Argonaut managing director Eddie Rigg said in the current environment it was decided an IPO was not the best path for the company which needed more patient capital.

“We would have got it away but we were not raising enough money,” Mr Rigg said.

“We had to raise more money and get the banks completely out of the story.

“You can’t have a financial partner who wants to get out at the wrong time.

“We are looking for three to six year money, not three month money.”

Mr Rigg said the strongest performer in the MIS sector, TFS, was debt-free.

“I think for the sector as a whole, since the massive shakeout, the outlook is great,” he said.

“We have seen the move away from bluegums and eucalypts to higher value products which make make money, like teak and sandalwood.”

Under the IPO, it was proposed NAB would have been paid out in instalments; $5 million within a fortnight of listing; $5 million at July 31; $5 million a year later and $4 million on July 31, 2012.

The now-scrapped IPO plans were an alternative to a merger with listed associate ARK Fund and raise $30 million.

Rewards holds a 13 per cent interest in ARK Fund, rents property from it and has provided guarantees for NAB loans to ARK Fund worth up to $9 million.

The stake in ARK Fund cost more than $3 million but would be worth about $1.3 million based the company's last close at 41 cents per share before trading was suspended on February 15.

Late last year, ARK Fund advised that Rewards was in arrears with its rent. It is also understood that ARK Fund has breached the loan to value covenants of its $33.2 million loan, which means Rewards’ guarantee is now available to the bank.

Mr Radomiljac said that the merger with ARK Fund was just one scenario the company had explored. He added that ARK Fund were also supportive of the Rewards strategy.

“That is agreed and locked in with ARK itself, ARK is very supportive of the process,” he said.

Despite the rental arrears, bank moves and annual report records showing current liabilities exceeded current assets by more than $6 million at June 30, Mr Radomiljac was adamant there were no solvency issues with the business.

“No not at all,” he said.

Furthermore, he added the resignation of director Brian Aitken and the decision for Jonathan Willoughby to stand down as company secretary were moves related to the proposed IPO and would not have occurred if the current private raising had been undertaken first.