Woosh grabs $29m lifeline from backers

Struggling telecoms company Woosh Wireless has been thrown a lifeline.

It yesterday disclosed several of its high-profile shareholders had agreed to inject another $29.2 million, avoiding a cash crunch.

The Warehouse founder Stephen Tindall, Wellington's wealthy Todd family, US venture capitalist Clarity, and the Arab investor Kuwait Finance House are subscribing to debt that will convert into equity.

Just over $19.2 million of the cash has been received; $10 million more is due in February. Exact terms of the injection are still to be resolved.

Woosh, which provides wireless high-speed internet and phone services, wanted to boost its coffers with a public offer of $80 million and listing of its shares on the NZX last year.

It hoped to sell shares at $1.50 to $1.70 apiece. After investors expressed concerns about the Woosh technology, among other things, it took orders at $1 to $1.10, but could not get traction even at that level.

Woosh chief executive Bob Smith said the new capital injection was great news.

"We looked at an IPO, but we have great investors, they have always been there."

He said the company was on target to reach break-even in under two years.

The Woosh annual report, filed with the Companies Office, shows existing investors such as National Business Review publisher Barry Colman were not so keen. His option to buy 2.2 million Woosh shares at the end of last June has been terminated.

Meanwhile, Vodafone had decided not to exercise its full entitlement to shares.

The report was also tagged by auditors Ernst & Young, declaring the company only continued to exist at the grace of its shareholders.

"The financial statements have been prepared on a going concern basis, the validity of which depends on the recent shareholder advances and new banking facility ... as well as the company's current activities in exploring additional private equity funding ... "

The company's June year net losses rose from $18.9 million to $21.8 million, taking accumulated losses and investment in the business to $130 million. Sales rose from $6.4 million to $11.4 million.

Operational expenditure in the year to June amounted to around $17 million, equal to about $1.4 million a month. If it had continued to burn cash at that rate it would have quickly run out of funds.

However, Smith says Woosh is progressively reducing its cash burn rate as its fixed costs were spread across its growing customer base. This development, the new funding and a $10 million loan from Westpac should give it sufficient cash for at least 12 months. But it will still continue to look for other funding options.

"We looked at an IPO last year and it is something that we will continue to look at," Smith said.

Woosh said that in the year to June 2005 its customer base had grown by 144 per cent.

In July Woosh said it had 15,000 subscribers.

It also said later last year it had signed up 1000 people to its phone service, the first on offer in New Zealand allowing customers to ditch their Telecom phone line. It would not disclose the number of customers it had acquired since then.

Woosh's backers have so far lost heavily on their investment. At the $1.10 share price contemplated during the float Woosh would have had a market value of $151 million, of which more than half was represented by the cash to be raised during the flotation.

To put it another way: the original $130 million invested in the business was worth a maximum of $71 million.