Rakon unveils $65m capital raising for China push

Rakon managing director Brent Robinson. Photo supplied.

New Zealand high-tech company Rakon has announced an expansion into China, saying it will start building a new factory there, as part of a joint venture.

Built with Chinese company Timemaker, Rakon, which makes crystals used in GPS devices, says the move will also "enhance the capability" of its New Zealand manufacturing facility. Details of a $65 million capital raising were also revealed today.

"Significant growth opportunities are in front of us and we need to make sure we build on our technology leadership with a scale of operations and cost base that will enable us to secure business and maximise returns," said Rakon managing director Brent Robinson.

"Combining our technology with access to scale in China and India provides us with a significant edge over our competitors as we seek to grow market share in the telecommunications market and fast growing mobile location sector.

China has become the centre of manufacturing for consumer electronics, and expanding our presence there gives us a much stronger position in what is the world's largest market."

Construction of the first stage is expected to cost $30 million through to the end of 2011. Additional funds will be used for working capital, repayment of all debt and the settlement of outstanding deferred consideration for Timemaker of $6.3 million.

Robinson said Chinese expansion plans were put on hold last year due to the world recession, but "the scale of the earnings growth opportunities in front of us, and the speed at which they are developing, gives us confidence that now is the right time to proceed," said obinson.

"During the past 12 months we have been able to re?evaluate both the location and type of facility we will build to ensure we will get the greatest return on our investment."

Rakon's plans to start building a crystal manufacturing plant in Chengdu later this year, with operations starting in the factory early in 2011.

Capital raising:

The $65 million equity raising comprises a $45 million underwritten institutional placement, as well as a $20 million underwritten 'Share Purchase Plan' for eligible shareholders. The placement price is underwritten at NZ$1.10.

The institutional placement comprises two tranches, the first being an unconditional tranche raising approximately $25 million. The second tranche of approximately $20 million will be conditional on approval by shareholders by way of a shareholder vote. This vote is scheduled to be held on 12 October.

Rakon's founder and non-executive Director, Warren Robinson is taking part, being issued $1 million worth of shares immediately prior to the placement, at the same price as the shares issued under the placement.

"I recognise that in order to make the most of these opportunities, Rakon needs to raise the required capital to fund the expansion of its manufacturing capability in China, and I'm personally willing to support the equity raising by subscribing for shares prior to the placement," said Warren Robinson.

Rakon shares are in a trading halt, with trading expected to resume tomorrow.

eligible shareholders to subscribe for NZ$15,000 worth of shares in the SPP, and NZX has provided a waiver on that basis. Further details will be provided in the SPP booklet when it is sent to shareholders

Rakon is also issuing $6.3 million of Rakon shares at the same price as the shares issued under the institutional placement to its existing Chinese joint venture partners as part settlement of existing deferred consideration in respect of the establish of its original Chinese joint venture, Timemaker.

Rakon gave earnings guidance today, saying it expected the second half of the year to improve significantly with 2010 earnings before interest and tax to be between NZ$4 and 8 million dollars, inclusive of a first half loss of between NZ$3 to 4 million dollars.

Rakon said it expected sales volumes in the second half of the year to be approximately 150 per cent higher than those of the same period last year, when sales dropped off dramatically due to the global financial crisis.


NZ HERALD STAFF