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NZ Windfarms outlines $34m rescue rights issue

Friday 19th March 2010

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New Zealand Windfarms is seeking $34.1 million in a deeply discounted eight-for-three cash issue that the company says must succeed "or the consequences will be dire."  

Windfarms already expects a shortfall in investor uptake and is calling a special general meeting on April 6 that would allow 20% shareholder Vector Ltd. to own as much as 39.9% of the company if it chooses to take up additional allotment.

 Windfarms has so far been unsuccessful in finding an underwriter for the issue.

Unless a minimum of $25.6 million is subscribed, the issue will not proceed and the independent appraisal report from investment bankers Northington Partners warns that debt-raising and more deeply discounted offers are unlikely to be attractive or feasible.

The offer is pitched at 15 cents a share, a discount of 34% to the implied post-split valuation - a level that places the Windfarms offer at the high end of discounts offered in variously successful cash issues undertaken in the last year.

Lead issuer Goldman Sachs JB Were is also being offered up to $836,500 through a 2.75% incentive fee on the total raised to encourage uptake and identification of underwriters.

Vector has made no NZX statement on its intentions with respect to supporting Windfarms, which has run into trouble developing its Te Rere Hau windfarm in the Manawatu, owing to a combination of acquiring the 50% stake previously owned by a subsidiary of failed infrastructure company Babcock & Brown, and low revenues from wind generation.

The company has also been in dispute with the manufacturer of its turbines, Windflow Technology Ltd, over international certifications and design changes as the Christchurch-developed two-blade turbines have been installed over the last two years at Te Rere Hau.

Windfarms is the only customer so far to place orders for Windflow turbines, leaving Windflow highly exposed to the potential for Windfarms' commercial failure.  Both companies's auditors have issued "fundamental uncertainty" tags on their most recent annual accounts.

NZX-listed Windfarms shares fell 21% today on substantial volumes, to a new 52-week low of 31 cents, accompanied by NZAX's Windflow, which fell 17% to $1.  Vector shares were off 1% at $2.07.

Given the current market environment and the ongoing level of uncertainty over the future economic feasibility of developing new windfarm sites, we believe that the current prospects for NWF are almost exclusively reliant on the successful completion of the Te Rere Hau development.  Ongoing profitability is in turn a function of the reliability and efficiency of the Windflow Technology turbines used by NWF.

If for any reason the Company cannot raise the capital to complete the development, the consequences will be dire.

Given the unconditional commitment to purchase the remaining 32 turbines from Windflow Technology, the Company will quickly become insolvent and be left with an incomplete, sub-scale windfarm with very uncertain value.  The value of the NWF shareholders’ investment in this scenario is likely to be limited.

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