iiNet to raise $2.6m in Powertel placement

Perth-based internet service provider iiNet will raise approximately $2.6 million through the issue of shares to Sydney-based communcations services provider PowerTel Ltd to give it a stake of more than 13 per cent.

The placement, which was agreed to by both companies in May this year, is of 3.7 million shares at 69.6c, the volume weighted average price of iiNet shares over the past week. It was the second part of a transaction which saw PowerTel come on board as a major iiNet shareholder in May when it bought 12.6 million shares at 85 cents each, outlaying $10.7 million.

The deal came during a time of enormous drama for iiNet, which halted trading in its shares for five weeks after discovering a series of technical issues had resulted in inaccurate forecasts being presented to the market. Before trading in its shares was halted they had been trading at about $1.70 each.

The companies had originally agreed to the issue at 85c each, dependant on the conclusion of operational arrangements between the companies and iiNet not trading below 75 cents for 10 days before the issue.

Were the sale to have proceeded at that price, iiNet would have raised around $3.2 million. The company was trading at 66c yesterday.

iiNet has 121.8 million shares on issue with a market capitalisation of $79.2 million.

PowerTel provides iiNet with the fibre networks for its east coast customers, but faces a threat from telecommunications company Amcom Telecommunications Ltd.

Amcom managing director Eddy Lee expressed its interest in securing a deal with iiNet earlier this year, after Amcom acquired almost 20 per cent of the company in May, and chairman Tony Grist joined the board.

iiNet also appointed PowerTel's managing director Peter Broad as a non-executive director in June, after iiNet placed 12.6 million shares, or a 10.3 per cent holding, with the company during its May revenue raising.

The full text of an iiNet announcement is pasted below

iiNet Limited informs the market that it has agreed to issue 3,763,986 shares to PowerTel Ltd at a price of 69.6c, which is the volume weighted average price of the iiNet share price over the last week.

iiNet and PowerTel entered into a Placement Agreement on 26 May 2006 at which time iiNet issued 12,600,000 shares to PowerTel. A second tranche placement was provided for in that agreement at a price of 85c per share, which was conditional on a number of conditions precedent.

A number of these conditions have not been met including a floor on the trading price of the stock set at 75 cents. The parties have nonetheless agreed to proceed with the placement at a price which more reflects recent trading history.

Based on unaudited accounts to June 30, the company has achieved the EBITDA guidance of $24.6M provided to the market in May. The Company is in the process of finalising the year end results for release in September.