LONDON (Alliance News) - Graphene NanoChem PLC shares rose on Monday after securing a two-year payment moratorium on its short-term debt and striking a deal to repay a substantial chunk of its longer-term debt by selling non-core assets.
Graphene NanoChem shares were trading up 26% to 12.25 pence per share on Monday morning.
The nanochemicals and advanced materials company had previously undertaken an overall rationalisation of its business to focus on a suite of higher-margin products, which included reviewing its debt in order to allow the firm to continue developing its performance chemicals and performance materials businesses.
That restructuring was launched before its 2015 first half results were released in September, which revealed the company's pretax loss had widened to GBP3.7 million as revenue plummeted to GBP7.0 million from GBP20.4 million due to its rationalisation efforts.
"After a difficult year, the business will become right sized, leaner and well positioned to capitalize upon future prospects in the two large markets in which we operate," said the company Monday.
Graphene NanoChem said its primary financier, Malaysia Debt Ventures Berhad, agreed to restructure the company's short-term debt, totalling GBP16.0 million, to allow the company to become a "leaner and stronger" nanotechnology company.
The company was supposed to have paid that debt in full back in November last year.
The short-term debt will be converted into longer-term debt with a two-year payment moratorium, and the financier also mapped out repayment obligations aligned with the company's growth plans.
The moratorium runs up to the end of 2017, and the maturity date has been extended to December 2021. Importantly, that agreement has alleviated some of the pressure on the company's cash, giving it breathing space to take action to mitigate the impact of the "challenging operating environment".
That short-term debt, however, only represents around 53% of Graphene NanoChem's total debt. The company said discussions with its other financiers, Bank Pembangunan Malaysia Behad and Bank Rakyat, have progressed well and an agreement has been reached, in principle.
Graphene NanoChem has agreed to repay GBP12.0 million of the secured debt owed to those two financiers using proceeds raised from the disposal of non-core assets, and said the initial discussions with potential buyers are "progressing well".
The company said the fuel additive assets and its palm oil refinery are assets that will be offloaded. The company has already exited from its fuel additive business as it was a low margin operation that looked unlikely to improve those margins any time soon.
"The successful implementation of the restructuring plan is expected to significantly reduce its debt balance and interest rate expense, which will have a positive impact of strengthening the group's balance sheet," said the company.
"Further, the utilization of operating cash flows in the near term for advancement of the recalibrated business plan rather than repayment of debt, bodes well for the group as it focuses on available resources and growth strategies on long term, higher margin business opportunities," the company added.
Graphene NanoChem said it expects to receive "claims and/or legal suits" from unsecured creditors during the sales process, which will lead to some of its subsidiaries being wound-up and some of the proceeds from asset sales will be used to settle individual subsidiary debt.
"This is not expected to have any material operational impact to the group and will be dealt with at the FA Subsidiaries' level save and except for one claim brought by an unsecured creditor of the FA Subsidiaries against Graphene Nanochem for approximately GBP700,000, which is currently contested by the group. For prudence, the claim has been accordingly provisioned for in the group's cashflow," said the company.
Following the restructuring of its portfolio, the company will be focused on its existing core business around oilfield chemicals and water solutions.
"Operationally, 2016 continues to be a period of market building for the group and a number of commercial opportunities have been identified to increase sales volumes and expand market reach particularly in light of the urgent needs for water treatment solutions and significant progress is being made," said the company.
"Graphene NanoChem remains focused on preserving and enhancing its cash position and the Board continues to evaluate all financing options available, including the raising of new debt finance and the raising of additional funds from the capital markets," the company added.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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