NZX's SuperLife may end up controlling unprofitable, cash-strapped Energy Mad

SuperLife, the funds management firm acquired by NZX in December, may end up with a controlling stake in unprofitable lightbulb maker Energy Mad after agreeing to underwrite a rights issue and subscribing for convertible notes.

An independent assessment by Simmons Corporate Finance, on behalf of non-associated shareholders who must vote on the arrangements, deems the positive aspects outweigh the negatives. If fully subscribed, the rights issue would raise $2.09 million for Energy Mad for use as general working capital and to fund its LED bulb strategy.

The company, which had negative equity of $200,000 as at Sept. 30, has relied on the $2.5 million proceeds of the two convertible note issues to fund its operations over the past year. Simmons says Energy Mad is under-capitalised and may be hamstrung in its strategy to expand in Australia and New Zealand if the funds aren't raised.

The rights issue is for up to 34.5 million new shares on a four-for-five basis at 6.5 cents a share, 28 percent below the last trading price of 9 cents, which Simmons called a "deep discount." SuperLife would underwrite the issue up to $1.8 million.

The underwriting arrangements and conversion of notes to ordinary shares would lift SuperLife's holding to between 27 percent and 89 percent, from 19.2 percent, depending on the number of shares it is issued. Simmons said an outcome of 89 percent going to SuperLifer was unlikely because it would need non-associated shareholders to take up none of their entitlements to the rights and for the market price of the stock to have dropped to just 1 cent on the day of conversion of the notes.

The non-associated shareholders are to vote on the allotment of ordinary shares as a result of the note conversion and underwriting arrangements at a special meeting on Feb. 25. SuperLife is currently the company's third biggest shareholder behind founders Chris Mardon and Tom Mackenzie, whose family interests hold about 24 percent apiece.

The shares have have tumbled 78 percent in the past 12 months. The company struggled to reach its initial public offering target but managed to raise the $5 million selling shares at $1 each before listing in October 2011. Even then it needed a waiver from NZX listing rules because the IPO failed to attract the minimum 500 shareholders.

It won a $220,000 government grant to develop a new 'Ecobulb' downlight and secured a $2 million banking facility with HSBC in December 2011. A month later it slashed its earnings forecast by two thirds compared to the projection in its prospectus, citing production and product accreditation delays, high freight costs, and currency movements.

NZX acquired SuperLife as part of a plan to launch a series of new exchange traded funds for an upfront payment of $20 million in cash and shares and a further $15 million over three years tied to retention and funds under management targets.