16.07.2012

Tanfield raises more funds

Tanfield has raised a further £2 million after costs, in order to provide a six month loan to its associate company in the USA - Smith Electric Vehicles.

The funds were raised through a placing of 5,135,714 new shares with institutional and other investors at a price of 42 pence a share. Among those taking the new shares is Tanfield director Roy Stanley who has taken 238,905 of the new shares.

Tanfield, which now only owns a 24 percent stake in Smith, has agreed to provide a short-term bridging loan to provide liquidity prior to its planned initial public offering (IPO).

The loan is due to be repaid on completion of Smith’s flotation and is part of a £12 million line of credit Smith has requested from key shareholders.

The short term loan will pay market rates and in the event the IPO does not go ahead the loans would stand as a senior unsecured debt.
This latest fund raising follows the £11.4 million that the company raised during the first quarter to fund its Snorkel access business.

That money has enabled it increase production in response to a strong order book. It says that demand has held up and, as lead times come down it expects order intake to rise to the point where it expects to break-even during the second half.

Tanfield/Snorkel chief executive Darren Kell said: "Given that Tanfield is Smith's largest shareholder, we are keen to support the company in its planned IPO. This fundraising that will enable Tanfield to participate in a lending facility that gives Smith that support without risking the progress achieved year to date in the powered access business."

Vertikal Comment

On the surface this transaction looks a little unusual - issuing new shares in one company to provide a short term loan to another. It is possibly the only avenue open to Tanfield, and it is of course in its interest to ensure that Smiths makes it through to a sound stock market flotation.

The cost to Tanfield to do this is 10 percent and market rates are nowhere near the 20 percent that it would require to come out whole on the transaction. (Although there may be fees in the deal to cover this?)
This though may be a small price to pay to keep Smiths moving towards the flotation which will pay off handsomely for Tanfield.

If the IPO goes ahead as planned and Snorkel moves back into profit as expected this will look to have been an exceptionally astute move. Especially for those who subscribed to this year’s new share placings. Only those close to the inside of the business really know how risky or how much of a sure bet these investments are though.