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Dorchester to raise up to $12m in convertible note sale

Dorchester Pacific is planning to raise up to $12 million from the wholesale market because banks won't lend to it.

Monday, August 22nd 2011, 5:24PM

by Jenny Ruth

The company will sell three-year convertible notes with $10 million underwritten by three major shareholders.

"Dorchester Finance had intended to have in place a $10 million facility one year after its restructure but the banks have told us that we need 'more runs on the board,'" says chief executive Paul Byrnes.

The note issue's proceeds "will ensure that growth momentum is maintained in the medium term and that the longer-term profit prospects of Dorchester are realised," Byrnes says.

Both Dorchester Finance and Dorchester Life subsidiaries are performing ahead of forecast and the company is on track to pass break-even this year, he says.

"We believe this puts the business in a good position to secure bank funding in the future."

The underwriters are Hugh Green Investments and The Business Bakery, which each own 26.9% of Dorchester, and Byrnes who owns 3.9% and professional investors are being asked to contribute a minimum $500,000 each.

The notes, whose issue requires shareholder approval, will mature on March 31, 2015 (or earlier in the event of a takeover) at which point holders will have the right to either repayment or to convert their notes into ordinary shares at 10 cents per share - that could result in 120 million new shares if all options are exercised and the full $12 million is raised.

The shares are currently trading at 9.5 cents and have ranged between 8 and 15 cents over the past year.

The notes will receive 8.95% in interest initially with the first review date on April 1 next year. Byrnes says the cash will be drawn down in four tranches in October and November this year and February and March next year.

"We actually don't need the cash all at once. There's no point having cash on call at 4% and paying out 8.95%," he says.

Dorchester currently has 175.5 million ordinary shares on issue and 154.8 million options currently exerciseable at 12.5 cents per share on June 15, 2013. As part of the capital raising, the company will offer option holders the opportunity, cut not an obligation, to exercise their options early on June 2012 at 10 cents per share. Those options are also traded on NZX, last selling at 2.5 cents.

Dorchester made a $7.2 million loss before the $22.4 million benefit from last year's debt-for-equity swap. Dorchester's equity of $25.8 million at March 31 was 34.6% of total assets compared with negative equity of $2.8 million a year earlier ahead of the reconstruction.

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