Seadragon rights issue extended, lending covenants temporarily lifted

Tuesday 20th September 2016

Seadragon, the fish oil refiner, has raised the minimum $250,000 it sought in a rights issue launched this month and has extended the offer until Oct 10.

Its lender, Heartland Bank, agreed to temporarily suspend the Nelson-based company's lending covenants for the three months ended Sept. 30. In a statement, Seadragon said without this, there was a risk that "the company may potentially be in breach of that lending covenant."

The rights offer was launched on Sept. 5 and enabled shareholders to buy a new share in the business for every two shares held at a price of 0.8 cents. At the time, shares in Seadragon traded at 1.2 cents.

The money will be used to pay the costs of the rights issue, retire bank debt, provide additional working capital as the company seeks to exit the Omega-2 market and enter the Omega-3 market, and provide funding for more processing capacity.

Seadragon wants to raise a maximum of $12.6 million. The prospectus cites the company's ability to secure Omega-3 oil supplies and attracting customers as risks to investors.

"As Omega-3 products are a new product line for the company, we are in the process of negotiating supply arrangements with potential suppliers," the document said. "There is no guarantee that we will be able to source sufficient new raw material supply arrangements."

It also noted that "as Omega-3 products are a new product line for the company, we do not have an existing customer base. Although we are engaged with potential new customers, there is no guarantee that we will be able to agree terms with them."

In June, Seadragon's auditors tagged the company's accounts, saying there were uncertainties that cast doubt on its ability to continue as a going concern. They were worried it may not have sufficient cash reserves to meet its obligations if it didn't receive continued support from investors and its bank, as well as achieving forecast cash flow.

The company also said it breached one of its lending covenants with Heartland due to a sell-off of its Omega-2 inventory.

Last month shareholders in Seadragon voted overwhelmingly in favour of a funding deal with Comvita which will result in the Manuka honey company taking as much as a 36.5 percent stake in the fish oil maker.

Shares in Seadragon closed at 0.9 cents and have risen 9.4 percent since the start of the year.

BusinessDesk.co.nz

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