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I WONDER why a company that claims to have list of "experienced" investors as well as $20m of investment capital is intent on wooing local investors in a substantial capital-raising exercise.
An investment profile I recently received in my email outlined plans for SunEnergy, a South African company focusing on solar energy and other renewable power sources, to raise R100m from sophisticated investors.
Alternative energy, naturally, is all the rage. And SunEnergy claims a host of "experienced" backers have already invested in the company.
According to a list provided in the investment documentation, these include a state premier, executives of numerous international companies (Mitsubishi, ANZ Bank, Macquarie Bank, IBM), "high-profile sportsmen", institutional funds, "the largest Washington car dealer", partners at KPMG and PricewaterhouseCoopers, an Australian senator, a state treasurer and a US ambassador.
SunEnergy's website says the company has successfully sold renewable energy systems to blue-chip customers in more than 25 countries. The company claims: "We are a supplier of choice and the industry leader in large hybrid renewable energy applications."
The website also claims the company has consulted to Sasol, Anglo American, Harmony Gold Mining, FNB and De Beers as well as delivering over "1 000 'man years' of consulting to Eskom as well as government authorities in Namibia, Uganda, Tanzania, Kenya, Botswana, Zambia and Mozambique".
Sounds impressive.
It transpires, though, that hard-working SunEnergy needs the R100m to fuel its growth path. According to the investment document, about R55m is needed for working capital and another R23m for research and development. The balance will be used for market development, capex and training.
Financial statements can't be found
While the website claims a surfeit of "man years", a segment outlining the risks of investing in SunEnergy suggests the company is still in development stage.
But - and this is a big but - the development stage company is claiming a rather hefty market capitalisation of R300m if the issue of 100 million shares at 1 000 cents per share is successful.
I would respectfully submit that a value of R300m sounds a bit "toppy" for a development stage company.
OK, so how do we quantify the value of R300m or 1 000c/share that SunEnergy directors are suggesting the company is worth?
Well, that's easy. All you do is request a copy of the prospectus (which should contain forward-looking statements signed off by an auditor or adviser) and scan the latest audited financial statements for the company.
In SunEnergy's case, this was easier said than done.
The investment document contains no prospectus. Nor does it present any audited financial statements.
I sent an email enquiry to SunEnergy director John Price, whose name was attached to the email punting investment in solar energy.
I'm now told that Price is travelling, and could not get back to me immediately. Chatting to one of the SunEnergy marketing people, I got the sense that because the company was pitching shares at high net worth individuals, it felt there was no need to attach a prospectus of audited financial statements to the investment application form.
My request for a copy of a prospectus or recent audited financial statements seemingly fell on deaf ears.
The marketing person also suggested this article was not accurate. But when requested to point out the specific inaccuracies, I was told that no further comment would be forthcoming. Very helpful..
I can only hope this diffident attitude is reserved for the media, and that investors can actually request a prospectus or audited financial statements.
Look before you leap
Otherwise, how would so-called high net worth individuals gauge whether the 1 000c/share offer presents reasonable value? I mean, a potential investor - without seeing recent audited financial statements - could be paying 1 000c/share for a company with assets worth 5c/share, no cash flow and no profit history.
What is contained in the investment documentation is some tantalising information around future fund-raising efforts. A capital-raising exercise scheduled for 2011/12 is set to raise R250m by issuing 10 million shares at 2 500c/share - more than double the current offer price.
Then there's another "public" offer due for 2013, when SunEnergy will look to raising R800m by issuing 20 million shares at 4 000c/share.
At that stage SunEnergy - which implies its share value will quadruple in just four years - will be worth R2.4bn.
While all this might impress a novice investor, my advice is to dismiss these forward-looking figures as purely imaginative. Without access to audited financial statements that show SunEnergy's asset base, cash flow and revenue lines there is no way such claims of massive leaps in market capitalisation can be tested.
One of the risks outlined in the SunEnergy capital raising is dilution - and this has a clear bearing on my anxiety about what shareholders are actually getting for their 1 000c/share.
I quote: "The offering price of the SunEnergy securities will be effectively set by the market and is likely to be substantially higher than the pro forma book value per share. Investors purchasing new securities in this offering will therefore incur immediate and substantial dilution."
Even more telling is the admission around the speculative nature of SunEnergy: "An investment in the SunEnergy securities is speculative and involves a high degree of risk. Investors must be prepared to bear the risk of their investment for an indefinite period and be able to withstand a total loss of their investment.
"In making an investment decision, investors must rely on their own examination of the company [my emphasis] and the terms of the offering, including the merits and risks involved."
Need I say more?
- Fin24.com
