ProvencoCadmus tests noteholder loyalty

By Pattrick Smellie

Friday 20th February 2009

Troubled electronic and mobile payments system vendor ProvencoCadmus is to further test the patience of investors in its capital notes and shares by rolling the notes over at a 2% interest rate, down from the 9.25% offered when first issued in 2006.

To assuage the noteholders, the company is offering the option of converting the notes to ordinary shares, thus diluting the shareholdings of existing investors, who have watched Provenco's price slump from $1.15 a share to 4.8 cents over the past two years. The stock tumbled 13% today.

Provenco is scrambling to recapitalise the business, after seeking underwrites last July from major shareholders Todd Corp. and technology entrepreneur Peter Maire's Tahia Investments that allowed it access to an $8 million funding line from ANZ Bank. Key to the recapitalisation is the sale of Vantex, an Australian and Asian technology distributor that accounted for 60% of the company's total revenue in the last financial year.

The ANZ facility is due to expire at the end of the month, and Provenco CEO Jim Doyle said in a market update to the NZX overnight that the company was "seeking to extend the bank facilities to enable us to complete all the steps involved in the recapitalisation strategy".

"The sale of the ProvencoCadmus finance book was largely completed in December, and we are currently well down the track with the sale of Vantex," Doyle said. "Whilst this is taking longer than anticipated, we are well advanced with our plans to sell or recapitalise Vantex, and expect to be in a position to put a transaction to a Shareholder vote in March/April 2009."

Owing to difficult trading conditions and near term cash constraints, the board had decided to roll over the $10 million of NZX-listed capital notes to March 31, 2010, a little under 12 months from the rollover date of April 16.

The notes would be rolled over "at a concessionary interest rate of 2% per annum," the company said. The notes carry a three year rollover option, are currently bearing 9.25% , and last traded in August last year, at a yield of 27.5%, reflecting the high risk associated with a company that is supported by a who's who of New Zealand venture capitalists, including Warehouse founder Stephen Tindall.

"The company recognises that the interst rate will disappoint some capital note holders but it is one of the elements required in order to ensure the business can continue to operate through the end of the recapitalisation process," the update said. Interest rates today were also far lower than when the notes were first issued.

"In order to somewhat mitigate for the reduction in interest rate" noteholders who choose to rollover will have the option of converting their Notes converted to ProvencoCadmus shares at the lesser of the volume weighted average sale price (VWAP) in the 20 business days prior to 15 April 2009, or the VWAP prior to 31 March 2010.

"This will allow noteholders to retain prioirty to shareholders, but to also benefit from any share price appreciation that may occur following the recapitalisation (if a noteholder elects to convert to equity in March 2010)."

The company's half-year result was expected to be finalised near the end of next week, and noteholders should consider the result prior to making decisions on their notes holdings, it said.

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