Chemeq's loan terms changed to include revenues, assets

Perth-based antimicrobial specialist Chemeq (ASX:CMQ) has agreed to vary the terms of the AUD$60 million convertible bonds issued to the company earlier this year, requiring the company to make revenues of at least $4 million in 2005-06 and to have liquid assets of $24 million or more.

Last financial year Chemeq posted revenues of $1.1 million and had $37.6 million in cash at June 30, 2005.

According to Chemeq, the variations were prompted when existing bondholder, Stark Trading, purchased the convertible bonds held by fellow investor, Japanese group Mizuho International, leaving Stark and its affiliate Shepherd Investments International with 100 per cent of the convertible bonds.

"There seems to be a change in investment direction as far as Mizuho is concerned," said Chemeq CEO David Williams, "but the positive is that Stark, who knows us -- warts and all -- have jumped in and taken them out."

The changes to the bond deed remove the covenant which requires Chemeq to achieve product approval for pigs from the Australian Pesticides and Veterinary Medicines Authority (APVMA) by April 30, 2006.

Instead, new financial covenants focus on gross revenue and liquid assets.

Williams said that the decision was made to "change from the regulator approval, which is not within our control, to revenue and cash, which are better indicators of the business and how the business is performing, which are more within our control".

When asked if Chemeq could meet these new terms, Williams said: "I believe we can achieve both of those".

Chemeq is still focused on achieving APVMA approval, said Williams, and he will not be seeking to alter his short-term performance incentive, which is largely based on securing APVMA product approval by April 30, 2006.

"I had a right under the contract to change it to match the other two covenants," said Williams. "But getting the Australian regulatory approval is still important to me and I volunteered to the board to keep my contract as it was."

The bonds have a three-year term and will expire in early 2008, unless Stark and its associates decide to convert the bonds sooner. Chemeq is paying an 8.5 per cent coupon rate on the bonds, said Williams.

The conversion of the acquired bonds by Stark may still need the approval of Chemeq shareholders, depending on the ultimate conversion ratio.