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Moa seeks up to $5.25m in discounted rights issue

Moa Group [NZX: MOA], the unprofitable boutique beer maker, raised $500,000 from three individuals and two institutional investors (whom it declined to name) and plans to raise up to $5.25 million in a discounted rights issue to existing shareholders.

The Auckland-based company sold 1.3 million shares to the unnamed investors at 38 cents, a 31 percent discount to the trading price before the announcement, and said it plans to sell up to 15.9 million shares at 33 cents apiece in a one-for-two renounceable rights issue, a 40 percent discount. Existing shareholders can also apply for oversubscriptions. The placement and a fully-subscribed rights issue would increase the total shares on issue to 47.6 million from 30.4 million. The placement will settle on July 29.

Moa said it has received commitments for $3.57 million, including from participants in the placement and certain existing shareholders.

At the end of its financial year on March 31, the company had $4.1 million of cash reserves, down from $11.5 million a year earlier and said it was looking at a range of financing alternatives to ensure it had adequate capital resources to support its growth plans.

Pioneer Capital, which owns 24 percent of the company, and The Business Bakery, on 23 percent, provided Moa with a letter of commitment to provide financial support enabling the group to continue to operate for at least a year, according to its annual accounts.

The shares rose 10 percent to 55 cents before the announcement, and have held those gains [UPDATE: Moa shares closed flat at 50 cents].


Comments and questions

How on earth could the Board sign a certificate under s47 of the Companies Act that a placement at a 31 percent discount to the share price is "fair and reasonable to all existing shareholders"?

Doesn't this just screw over existing shareholders who can't participate in the placement?

Desperate times, desperate measures!!!

Because I suspect most directors do not know about this section.

Someone needs to challenge this, and ask for the grounds upon which the certicate is signed. Can't see it up at the companies office yet

My guess is that they had run out of cash. Otherwise why not wait for the rights issue. But if that was the case where were Pioneer and Bakery Boys support they promised the market the nzx or FMA should be asking some questions.

Absolutely agree - it would be a disgrace if the FMA (or whoever is the regulatory body in this instance) didn't challenge this: how on earth a placement that raises only $500,000 from only five investors at a 31% discount can be anything other than a deal for your mates is completely beyond me.

Doesn't say much for the integrity, morals or ethics of the Moa directors and advisors

Its a renounceable rights issue - sell your rights if you don't like it...

But the placement is not...

Deutsche Craig & Co clients must be wondering exactly what sort of QA is going on in their IB team, and how much DD was done on the Company pre-listing. With $1.6 million in fees paid in the IPO, perhaps Craig & Co should invest as a principal in this round, and furthermore invest around 75% of their fees in each IPO as a sign that they truly believe in their issues - whcih would be a good sign of support, not just selling it to clients.

Sounds like a sweet deal for the Pioneer and Business bakery guys to dilute the other existing loyal shareholders who won't want to further invest after such poor performance to date.

But in saying that the existing shareholders would be fools to further invest anyway so good luck to those who do - they will need it.

Maybe NZ Super should have a good look at Pioneers wobbly investment portfolio - as a good chunk of their funds is NZ Supers and other institutions money

see i take it as a negative that pioneer didnt look to take up other peoples rights if they dont want to gamble it way again, unlike the business bakery. put your money where your mouth is and support the darned company as promised, beyond just your share. at least BB are doing that

Ah Doctor, welcome back. Always amusing to read your nonsense. Existing investors who don’t want to participate can sell their rights, and as for dilution this is offset by they their share of the new cash raised. As you were told last time you had a crack at Pioneer, Pioneer’s portfolio performance is excellent, which is why its investors are very happy. Again, stick to sore throats

Not all their investors are happy.

Xero and Moa seem to be the only two companies who spend decent chunks of their AGM convincing shareholders of the value of the shares rather then focussing on the business performance and strategic issues.

Always a bad sign, in my opinion.

this comment is bang on

Perform - dont try to manage share price.

No mention about the redeemable preference shares being redeemed?

Heads they win, tails you lose.

In satisfaction of the issue price of the redeemable shares, the Parent’s subsidiary, Moa Brewing Company Limited, provided loans
to the redeemable shareholders of $2,190,000 in aggregate. The loans provided are interest free, have recourse only against the
redeemable shares and are repayable in full on 12 November 2015, or earlier under certain conditions. As at 31 March 2014, no cash
has been exchanged in relation to this transaction and the aggregate value of the issue price, loans and receivable from subsidiary is not
recognised in the financial statements.

I don't think the redeemable shares have any value anyway. They probably redeemed them so those shares didn't receive any rights (which would have value).

Company lends them interest free loans to 'buy' those redeemable preference shares which have all the rights of ordinary shares.

But wait - if the company does not perform and share price falls, they get bailed out through redemption.

Just another way to give freebies to directors and major shareholders. Heads they win, tails you lose.

The recent average trading is lower than the last close, so the true discount is not 31% - good on the new investors from backing a kiwi brewery.

The Doctor didn't read the AGM announcement which said Pioneer and Bakery did not buy in the placement, but have agreed to fully participate in the rights issue.

A rights issue is open to all shareholders on a proportional basis so is much fairer than other company's Share Purchase Plans.

No qualms with the rights issue, but massive problems with the placement. Fascinating to know who they went to...

Didn't Geoff Ross promise everyone in that NBR 'ask me anything' that all investors would get equal opportunity?

Then he goes and does a placement at a massive discount? That's just rank.

Plus don't those new placement investors get a double discount with the rights that they will get too? So retail investors get shafted twice? What does the shareholders association say about this?

yes, who were these massive "institutions" who subscribed between 5 of them for $500k?

Usually a rights issue is done on a volume weighted average price over a reasonable period, like over a month or two before the event. If Moa hasn't used a VWAP method for assessing value of the rights, then it's entirely possible someone bid up or supported the price of Moa stock before they announced the rights, using this artificially inflated price to assess the rights price meaning ordinary shareholders will be asked to pay more that they should be.

When is Geoff Ross going to take a pay cut to reflect the terrible performance under his watch.

He should be sacked

Wonder how much pioneer ended up chipping in proportionately. Being that the dismal performance of the "brand" was largely nothing to do with them (bb chairman and CEO squillionaire responsibility) but alas they would have been roped in by the charmers.

Silly boys.

The pioneer rep in the board will be all over this. But lots of their investments seem to have turned for the worst. Now they are throwing good money after bad

since they are funded by taxpayers it would be great if their thinking (surely they have done some?) should be disclosed under the OIA. would make for fun reading

Yeah I don't think so, re rep.

If pioneer were wise about it - they would agree to put in only a small portion as a loan of what bakery "commits" (not based on there relatively even shareholding as many would presume took place) and only AFTER the company performed to a certain level by the chairman and CEO, would the loan be non repayable. Meaning business bakery actually has neck in the game for there own creation and biz mgmt. and doesn't rope pioneer into there faults and blame game as they have consistently done.

As for the shareholder dilution, nothing can be done about that :(

and we are all indirectly shareholders in Moa too, thanks to the decision to invest into them (NZS!)

Yes, but some shareholders are more "equal" in responsibility than others.

Yes and it makes me confident in NZS investment managers that they are not throwing "our money" around. They are making what must be said is a truely infinitesimal investment in a NZ company at a heavily discounted price. If MOA survives (unlike its namesake bird) NZS could make many multiples of their money and if the second Moa joins the first then NZS haven't lost much. Well done NZS, buy when there is blood in the streets.

NZS is not invested in Moa via Pioneer. Pioneer's Moa investment could well be in the money given it first invested pre-IPO and is buying again at 33c. If the business continues to grow (faster than any other NZ beer) it could be an outstanding return for Pioneer and its investors.

NZS is not but NZ Venture Fund is. That says it all.

You could maybe overlook pioneers first mistake and investing at all, but you probably can't forgive this second investment if it all goes poorly. That is really bad judgement.

Its called dilution pure and simple and of course Mums and Dads get screwed over, mostly. If you don't have the expertise and loads of spare cash don't invest in non profitable start ups.

...its a startup....high risk.....speculative Pays ya money takes ya chances

A real capital market (not self regulating) would have a separate board for these

All the recent IPO as marketed as growth......they are lotto

Another example of a select few getting the discounted placement but not the majority of shareholders under the same crowd again. Amateurs.

You're wrong. The shareholders get a lower price (33c) than the placement price (38c).

Yes but the new shareholders get the initial discount and then also the rights issue discount by the looks - so looks like double dipping to me. Poor form

What p***8 me off is how the market reacted so positively to news they had grown *volumes* by 95% vs the same period last year (which was a massive and undeniable disaster).

Compare it to what was forecast that fed into the prospectus, probably not good? I dont know, because no one bothered to say.

How good are the beers that these guys make????

They win the most international awards, so beer judges like them

Jump.. whilst there's enough height to open your parachute !

Maybe the product itself isn't gelling - a beer for metrosexuals - and the brand sounds like a lawn mower. I'll have a mower please... "No need son, I did the lawns yesterday!"

Are the majority of you stupid?

As an impassive observer, I look at Moa and think its going bust.

If I was a shareholder, I'd probably be even more worried.

If the company had just come out and said we're doing a rights issue - what would the takeup be - who would underwrite it?

The fact that the company has managed to get new institutions to invest $500k says that there are at least some professional investors out there willing to back this horse. If I was a shareholder, I would take that as a good thing, not be complaining about the placement being fair and reasonable.

Would you prefer what happened with Postie Plus - then your shares are worth nothing?

Professional investors? You mean like Milford Asset Management who partook in the initial IPO at $1.25? Also, they took a chunk of shares in the other 'great ideas' factory from Ross - Ecoya?

Don't count on the professional investors. Many of them were active participants in the likes of Rakon and Feltex.

I think we are all looking kinda sideways at Moa right now, it is hard to see a major turnaround.

In saying that, the fact that they have managed to get a further $500k out of institutions can only be a good thing I would have thought. Someone has looked hard at this and put $500k into it.

If I was a betting man, I'd say ACC have at least some of this. They'll put money into anything with a pulse.

There is no excuse not to give all shareholders equal opportunity. Instead, they have placed $500k with their 'mates' (hardly institutions at that low level) without justification.

If they were going bust without that placement, they should have informed the market under the continuous disclosure rules.

If not, why not wrap that $500k up in the pro-rata rights issue?

Presumably enough new capital to sustain the cash burn for the next year or two. I guess that means that new Brewery will never get built? A shame. Would have been handy having a couple of things on the balance sheet when the receivers come knocking.

All the all matters canvassed in this article and reader comments point to an abject failure by Moa to get the fundamentals of it's business sorted.. AND a repeat of promises and unbridled optimism as to sales (no mention of profitability) in the interests of raising capital. For what !! further supported a flawed business model !! The 'non-Ross' directors need to roll up their sleeves and act !!

Its even more fundamental than that. Its a complete con job. In the prospectus this company was supposed to be targetting exports. Suddenly now they realise yuo can't make money by shipping heavy bottles of beer overseas (what a surprise!) they are back to focussing on NZ (which is never going to justify a decent market value).

Then they say that they raised all that money in the IPO to build a brewery, but industry people I talked to said that was ridiculous and would have been the most over-priced brewery in the world! So i suspect they never intended to build it as described (at best some cut down version), and just used it as an excuse to raise more money to burn on the pyre of 'buying market share'. Just like Ross' other businesses actually.

Then in their latest press release they focus on sales volumes (not values) and gross profit suddenly becomes the 'key metric'. But we all know that when you switch from a distribution model to your own sales model the personnel cost is all below the gross profit line. So of course you get a natural expansion of gross margin, but you don't get any improvement in EBITDA! (in fact its a lot worse).

In summary, these guys are full of c**p. Get out while you can, because as long as they are there this thing will never be successful.

So if Geoff Ross is so hot as a brand-builder and marketer.. license the brand to somebody with distribution and manufacturing scale to make the stuff. And please.. no replies with 'bs' about " that can't be done with craft beer " It can !!

The $500k capital raising is just weird. Agree with PT above - either they desperately needed some operating cash or they needed to avoid breaching some covenant. Either way, I would be running for the hills.