Quadrise Fuels International PLC Open Offer (7483J)

TIDMQFI

RNS Number : 7483J

Quadrise Fuels International PLC

07 December 2018

NEITHER THIS ANNOUNCEMENT NOR ANY PART OF IT CONSTITUTES AN OFFER TO SELL OR ISSUE OR THE SOLICITATION OF AN OFFER TO BUY, SUBSCRIBE OR ACQUIRE ANY SECURITIES IN ANY JURISDICTION IN WHICH ANY SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL AND THE INFORMATION CONTAINED HEREIN IS NOT FOR PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, THE REPUBLIC OF IRELAND, SOUTH AFRICA OR ANY JURISDICTION IN WHICH SUCH PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

The information communicated within this announcement WAS deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 PRIOR TO ITS PUBLICATION. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

7 December 2018

Quadrise Fuels International plc

("Quadrise", "QFI", the "Company" and together with its subsidiaries the "Group")

Open Offer to raise up to GBP2.16 million

Quadrise announces a non-underwritten open offer to raise up to GBP2.16 million through the issue of up to 86,220,497 new Ordinary Shares at a price of 2.5 pence per Ordinary Share on the basis of 1 Open Offer Share for every 10 Existing Ordinary Shares held on the Record Date (the "Open Offer").

In addition, the Open Offer presents Qualifying Shareholders with an opportunity, provided that they take up their Open Offer Entitlements in full, to apply for additional Open Offer Shares through the Excess Application Facility.

A circular setting out full details of the Open Offer, including the terms and conditions and details on how to accept the Open Offer, (the "Circular") and an accompanying Application Form (for Qualifying Non-CREST Shareholders) will today be posted to Shareholders.

A copy of the Circular will shortly be available from the Company's website at www.quadrisefuels.com.

Capitalised terms used but not otherwise defined in this announcement bear the meanings ascribed to them in the Circular.

Open Offer

In the third quarter of 2018 the Company was pleased to announce the renewal of a number of existing relationships and to announce, in November 2018, the signature of a memorandum of understanding and MSAR(R) test programme with a European multinational integrated oil and gas company and entry by the Company into a Co-Marketing and Project Development Agreement (the "CMPDA") with Freepoint.

Whilst the Company has faced a number of challenges recently, and there continues to be some way to go before the Company anticipates being able to progress to commercial projects, QFI and its clients believe that there are substantial opportunities in the power generation and marine markets for MSAR(R) in the near term. The recently announced business development milestones, which are further described below, are positive initiatives in this regard.

As at 30 June 2018, the Company held cash resources of GBP2.2 million. These cash balances were confirmed in the Company's final results for the year ended 30 June 2018, to be sufficient to enable the continue development of the business into early 2019 with, at that time, a number of initiatives, including equity funding, under consideration to provide longer term financing for the business.

As at 30 November 2018, the Company had unaudited estimated cash balances of approximately GBP1.2 million and monthly expenses of approximately GBP220,000 per month. The Board therefore considers that, notwithstanding the positive recent business development initiatives, should access to additional funds not be secured by the end of January 2019, the Board would need to consider the commencement of an orderly winding down of the business at that time.

As previously stated, the Board has considered a number of funding initiatives and, following a review of the options currently available to the Company, the Company is now making the Open Offer to Qualifying Shareholders of up to 86,220,497 Open Offer Shares to raise up to, approximately, a further GBP2.16 million at the Issue Price of 2.5 pence per Open Offer Share on the basis of 1 Open Offer Share for every 10 Existing Ordinary Shares held on the Record Date.

In addition, the Open Offer presents Qualifying Shareholders with an opportunity, provided that they take up their Open Offer Entitlements in full, to apply for additional Open Offer Shares through the Excess Application Facility further described in the Circular.

The Open Offer is expected to raise total gross proceeds of approximately GBP2.16 million, should the Open Offer be fully subscribed. The Issue Price represents a discount of approximately 22.5 per cent. to the closing mid-market price of 3.225 pence per Existing Ordinary Share on 5 December 2018, being the last practicable date prior to the publication of this document.

The Directors currently believe the funds raised as a result of the Open Offer, will enable the Company to continue to operate and advance its business development initiatives until early October 2019.

Each of the Directors intend to subscribe under the Open Offer, in respect of an aggregate of 1,100,000 Open Offer Shares, with all bar one of the Directors intending to subscribe for their entire Open Offer Entitlements (an aggregate of 608,063 Open Offer Shares) and certain of the Directors applying for an aggregate of 491,937 Open Offer Shares under the Excess Application Facility.

Shareholders should note that should all Open Offer Shares be applied for, and the maximum of GBP2.16 million before expenses be raised pursuant to the Open Offer, the Company expects to be able to continue to develop the business and its pipeline of business development initiatives until early October 2019 but that the Company does not expect to have any projects generating commercial revenues by that time.

If the Company does not receive the proceeds of the Open Offer, the Company would be compelled to seek alternative forms of finance and, without access to a form of additional funding prior to 31 January 2019, the Board considers that the Company's existing cash resources will be depleted over time such that the Board would need to consider the commencement of an orderly winding down of the business at the end of January 2019. As further described in the Expected Timetable of Principal Events, and subject to the successful conclusion of the Open Offer, the net proceeds of the Open Offer are expected to be received by the Company on 15 January 2019.

The Open Offer is conditional upon:

(i) the Open Offer Agreement being unconditional in all respects and not having been terminated in accordance with its terms; and

(ii) the admission of the Open Offer Shares becoming effective by not later than 8.00 a.m. on 29 January 2019.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

 
Record Date for Open Offer                            6.00 p.m. on 5 December 
                                                                         2018 
Announcement of the Open Offer                                7 December 2018 
Publication and posting of the Circular                       7 December 2018 
 and Application Form 
Existing Ordinary Shares marked 'ex' by               8.00 a.m. on 7 December 
 London Stock Exchange                                                   2018 
Open Offer Entitlements and Excess CREST               as soon as practicable 
 Open Offer Entitlements credited to stock              after 8.00 a.m. on 10 
 accounts in CREST of Qualifying CREST Shareholders             December 2018 
Recommended latest time for requesting withdrawal      4.30 p.m. on 7 January 
 of Open Offer Entitlements and Excess CREST                             2019 
 Open Offer Entitlements from CREST 
Latest time for depositing Open Offer Entitlements     3.00 p.m. on 8 January 
 and Excess CREST Open Offer Entitlements                                2019 
 into CREST 
Latest time for splitting Application Forms            3.00 p.m. on 9 January 
 (to satisfy bona fide market claims only)                               2019 
Latest time and date for receipt of completed        11.00 a.m. on 11 January 
 Application Forms and payment in full under                             2019 
 the Open Offer and settlement of relevant 
 CREST instructions (as appropriate) 
Expected date of announcement of the results                  14 January 2019 
 of the Open Offer 
Expected time and date Admission effective                    15 January 2019 
 and dealings in Open Offer Shares commence 
 on AIM 
CREST accounts credited in respect of Open                    15 January 2019 
 Offer Shares 
Share certificates dispatched for the Open                    29 January 2019 
 Offer Shares by 
 

For further information, please refer to the Company's website at www.quadrisefuels.com, or contact [e-mail] or phone:

 
Quadrise Fuels International Plc 
Mike Kirk, Executive Chairman                  [phone] 
Jason Miles, Chief Operating Officer 
 
Nominated Adviser 
Smith & Williamson Corporate Finance Limited 
Dr Azhic Basirov                               [phone] 
Ben Jeynes 
 Katy Birkin 
 
Joint Brokers 
Peel Hunt LLP 
Richard Crichton                               [phone] 
Ross Allister 
 
Stockdale Securities 
Andy Crossley 
 Daniel Harris                                 [phone] 
 
  Public & Investor Relations 
FTI Consulting 
Ben Brewerton                                  [phone] 
Sara Powell 
 

Background to and reasons for the Open Offer

As stated in the Company's Final Results for the 12 months ended 30 June 2018, announced on 24 September 2018, the Company has seen some major challenges. Most notable of these, announced on 26 March 2018, was the inability of our oil company partner in the Kingdom of Saudi Arabia ("KSA") to reach agreement with the local power company to progress the commercial scale trial project, as they had promised. Following this announcement, a strategic decision was made to broaden our engagement in our global markets, whilst ensuring that QFI retains appropriate focus and control. Outcomes of this process were agreements with JGC and Freepoint which are enabling us to work collaboratively to access their established networks for mutual benefit. The Company has also signed agreements with agents to explore specific opportunities, and continues commercial dialogue with a number of major corporations where there is a similar alignment of interests in the fuel and bitumen industries respectively. The timescales over which QFI would therefore expect our proposed project portfolio to generate revenues have therefore extended beyond those anticipated when the Company last raised equity funds in October 2016. As at 30 November 2018, the Company had unaudited cash balances of approximately GBP1.2 million.

During Q3 2018 the Company announced the renewal of a number of existing partnerships and, importantly, in November 2018 was pleased to announce both the memorandum of understanding and MSAR(R) Pilot Test Programme with a European multinational oil and gas major, and the entry of a Co-Marketing and Project Development Agreement ("CMPDA") with Freepoint respectively.

Freepoint, which is based in Stamford, Connecticut, is both an established global merchant of physical commodities and a financer of upper and mid-stream commodity-producing assets. Freepoint also provides physical supply services and related structured solutions for counterparties located throughout the world.

The CMPDA provides a clearly defined structure for Quadrise and Freepoint to work together to progress MSAR(R) projects to long-term commercial agreements for the production and supply of MSAR(R) fuel to defined territories and counterparties on an exclusive basis. The preferred business model for both parties under the CMPDA is to 'Build Own and Operate' ("BOO") a facility jointly, to purchase residual streams under long-term contracts from a refiner and enter into back to back contracts with other counterparties for the supply of MSAR(R) fuels. Financial returns under the CMPDA are based on the respective party's contributions to bringing the project to fruition.

Building on the concepts established under the Memorandum of Understanding signed in July 2018, now under the CMPDA, Quadrise and Freepoint will investigate and pursue a carefully selected and mutually agreed list of MSAR(R) project opportunities. The parties will initially focus on the Americas, the Middle East and Asia, with the intention of jointly investing in projects on a BOO basis. In addition, there may be circumstances where a decision is taken by both parties to pursue a project on a tolling or licensing basis and the CMPDA defines the relevant participation of the parties in those circumstances. If QFI chooses not to participate in a project targeted by the CMPDA, the Company will grant Freepoint a licence to QFI's technology to build and operate a project on a site-by-site basis. The term of the CMPDA is 36 months, after which time it will continue unless terminated by either party with 24 months' notice.

Under the CMPDA the Company looks forward to advancing, together with Freepoint, the identified target list of third-party prospects to signed commercial terms at the earliest opportunity.

The Company's existing cash balances are expected to provide sufficient funding to allow the Company to continue to operate and advance its business development initiatives until the end of January 2019 and the Company does not expect to be able to advance any secured project to the stage of positive cash flow generation in this timeframe.

As a result, the Board believes it is appropriate to raise additional funds by way of the Open Offer. In addition to the proceeds of the Open Offer providing additional core funding, the Board believes that it is prudent to ensure that the Company has a resilient capital base as it enters the negotiation of contracts with prospective clients.

Given the longstanding support of Shareholders, including a large number of private shareholders, the Company is making the Open Offer available to Qualifying Shareholders of up to 86,220,497 Open Offer Shares at the Issue Price of 2.5 pence per Open Offer Share.

The net proceeds from the Open Offer, assuming the maximum number of Ordinary Shares are applied for, together with the Company's existing cash balances, are expected to provide sufficient funding to allow the Company to continue to operate and advance its business development initiatives until early October 2019.

If the Company does not receive additional funding prior to 31 January 2019 pursuant to the Open Offer, or pursuant to a less attractive financing alternative secured thereafter, the Board considers that it would need to consider the commencement of an orderly winding down of the business at that time.

Views of the Board

The Board believes that the net proceeds of the Open Offer (assuming that it is subscribed for in full) will be sufficient, together with the Company's existing cash balances, to enable the Company to continue to operate and advance its business development initiatives until early October 2019. Without the proceeds of the Open Offer (or to another form of financing subsequently considered) prior to 31 January 2019, the Board considers that it would need to consider the orderly winding down of the business.

The Directors therefore believe that the Open Offer is in the best interests of the Company and its Shareholders as a whole.

Each of the Directors intend to subscribe under the Open Offer, in respect of an aggregate of 1,100,000 Open Offer Shares, with all bar one of the Directors intending to subscribe for their entire Open Offer Entitlements (an aggregate of 608,063 Open Offer Shares) and certain of the Directors applying for an aggregate of 491,937 Open Offer Shares under the Excess Application Facility.

Whether or not Qualifying Shareholders decide to participate in the Open Offer will depend, amongst other things, on their view of the Company's prospects and on their own individual circumstances.

Outlook - Current trading and prospects

Notwithstanding the challenges faced in key markets where the Company has dedicated its resources over the period, QFI and our clients believe that there are substantial opportunities in the power generation and marine markets for MSAR(R) in the near term.

The Company has substantially recovered from the unfortunate setbacks during 2018 and with the recent announcements the Company is on course to develop a broader platform and pipeline of opportunities for MSAR(R) technology across a larger number of projects. Whilst QFI still has some way to go to progress these to commercial contracts, there has been a real change in the fuel oil and distillate markets, driven by the forthcoming IMO 2020 regulations, that has fundamentally improved the economics for MSAR(R) projects. Alongside this, adding to our existing relationships with PowerSeraya, JGC, Freepoint, the European oil major and others will enable us to progress new projects and to potentially accelerate existing project opportunities globally across a range of sectors, and QFI are working quickly to progress these at the earliest possible opportunity.

Financial information

Audited accounts for the Group for each of the three financial years ended 30 June 2018, 30 June 2017 and 30 June 2016 are available on the Company's website www.quadrisefuels.com.

As at 30 November 2018, the Group's unaudited cash balance was approximately GBP1.2 million. The net proceeds of the Open Offer, if fully subscribed, will materially enhance the Company's unaudited cash balances.

Use of proceeds

The Board believes that the net proceeds of the Open Offer, if fully subscribed, will provide sufficient funding to allow the Company to continue to operate and advance its business development initiatives until early October 2019. The Directors currently consider that the Company will be required to raise further capital in the future in order to develop any project to the stage where that project can generate net positive cash flow from continuing operations.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] or visit www.rns.com.

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December 07, 2018 02:00 ET (07:00 GMT)