Synertec transforms capital structure with $15 million debt facility and $7 million placement

Technology design and development growth company Synertec Corporation Ltd (ASX:SOP) has transformed its capital structure after securing a debt facility of up to A$15 million with Altor Capital Pty Ltd and receiving binding commitments from domestic institutional and sophisticated investors in a placement to raise A$7 million.

The debt facility and placement strengthens the balance sheet, providing flexible and balanced capital to accelerate the rollout of Synertec’s 100% renewable microgrid technology, ‘Powerhouse’.

Strong March quarter

These funding initiatives come after the company completed a strong March quarter with group revenue and other income in the range of $4.8 million to $5.2 million, which was up 47% on the previous corresponding period (pcp) and 9% on the previous quarter.

Gross margins also remained strong and strengthened during the period, as expected, with approximately $600,000 of customer revenue year-to-date generated from Powerhouse technology.

The combined capital package of up to A$22 million will take Synertec through to profitability and supports the company’s vision to create a high growth ASX-listed technology design and development company enabling a low carbon future through innovative technology solutions by commercialising scalable, environmentally friendly and energy-efficient technology for global markets.

Altor debt facility

Synertec’s debt facility with Altor will be available in two tranches, with an immediate progressive draw of a A$10 million tranche and a subsequent A$5 million tranche which is available subject to Altor’s review once the initial tranche has been fully drawn.

Altor’s provision of funding follows extensive technical and financial due diligence, including site visits to Synertec’s Powerhouse assembly facility in Brisbane and independent review of the technology.

The facility will be used to fund the upfront capital expenditure for the future rollout of Powerhouse units, which are typically provided to customers on a Build Own Operate Maintain (‘BOOM’) basis.

Powerhouse is a Predictive Intelligence solar & battery system providing highly reliable 100% renewable base load power for remote operations.

“Important corporate step”

Synertec’s managing director Michael Carroll said: “Following extensive conversations with multiple parties that have expressed interest in funding Powerhouse to its next level of maturity, we are delighted to be working with Altor Capital.

“The combination of the facility and the placement provides the capital required to scale the assembly and deployment of future Powerhouse units, and demonstrates bankability of the product.

“The facility represents an important corporate step for Synertec, introducing our first debt funding package, which will help provide the capital flexibility we require to drive improved financial performance. Importantly, the mix of both debt and equity delivers the optimal balance of capital ensuring that we maximise returns and minimise dilution and financing costs.”

In connection with the facility, A$2.5 million of warrants will be issued to Altor. The warrants will not be quoted on the ASX and can be converted into fully paid ordinary shares in the company upon exercise equal to a 30% premium to the 30-day VWAP as at today.

These warrants will be issued using the company’s existing placement capacity under ASX Listing Rule 7.1.

Powerhouse validation

Synertec says that securing debt validates the bankability of Powerhouse and will help provide the capital flexibility to drive improved financial performance, deliver returns to shareholders, and minimise dilution and funding costs.

The next two Powerhouse units nearing completion and deployment with Santos remain on time and within budget and have been funded from internal cashflow and do not require funds from the facility.

Synertec remains actively engaged with Santos, as well as a range of other potential customers across various industries, for the deployment of Powerhouse.

“The Altor team undertook extensive technical, financial and commercial due diligence on the Synertec Group and our Powerhouse technology, including visits to the assembly facility in Brisbane and independent technical reviews prior to committing to funding, which has provided positive third-party verification on the merit and outlook we see with Powerhouse,” Carroll said.

“We have always maintained that the large target market we see for Powerhouse across both domestic and international markets requiring reliable, continuous, affordable and sustainable base load power, provides a significant growth opportunity for Synertec and one that has the potential to substantially elevate Synertec’s financial profile in coming years.

“With a proven operational track record, a scalable assembly model, strong economics, engagement with a diverse potential client base and now access to capital, we have established the foundations to provide the opportunity to rapidly scale the deployment of Powerhouse and create meaningful value for our shareholders.”

“Tremendous opportunity”

Altor Capital Management’s chief investment officer Ben Harrison said: “We are extremely excited about the opportunity to partner with Synertec and its world-leading Powerhouse technology as it seeks to enter a significant production and delivery phase following the commercialisation of the technology.

“We understand Synertec’s core business, their target markets and customers for Powerhouse, and see a tremendous opportunity unfolding which is backed by a quality management and technical team with a blue-chip customer base and a strong track record of growth.”

Placement details

Providing further validation of Synertec and its strategy is the placement for which binding commitments have been received from institutional and sophisticated investors to raise $7 million.

87.5 million new fully paid ordinary shares will be issued in Synertec at $0.080 per share with this price being a 17.5% discount to the last closing price of $0.097 as at Tuesday, April 30, 2024, and an 18.6% discount to the 5-day VWAP of $0.098 per share up to, and including April 30, 2024.

Settlement of the placement is expected to occur on Wednesday, May 8, 2024. New shares are expected to be issued on Thursday, May 9, 2024, and will commence trading on a normal settlement basis the same day.

Unified Capital Partners acted as lead arranger for the debt facility and lead manager to the placement.

“I would like to thank our existing institutional shareholders for their continued support of our business which is a positive endorsement of our strategy and outlook,” Carroll added.

Engineering business grows

During the March quarter, Synertec’s engineering business continued to secure new contracts, increasing work in hand providing a solid platform for growth.

$500,000 of new contracts were secured with Melbourne Water and the company continues to grow its presence in the water sector in Victoria working on projects with seven different water sector clients during the period.

Work also continued with Jupiter Ionics to support their green ammonia technology development and commercialisation.

Developed by world-leading researchers at Monash University, Jupiter Ionics’ breakthrough electrolytic cell uses a unique, high-performance design that optimises efficiency, durability and ammonia production, and uses air, water and renewable energy in a patented electrochemical process to produce green ammonia.

Synertec has delivered a variety of projects for APA Limited in the period contributing to their East Coast Grid Expansion project.

Control systems programming, validation and commissioning has supported conversion of APAs network to become bi-directional, allowing gas to flow south from Queensland to support potential gas shortages in NSW and Victoria.

Its specialist Transport team has recently completed the successful deployment of a complex subterrain Siemens fire and life safety control system for the Melbourne Underground Rail Loop (MURL).

The deployment represents a major milestone with the project reaching operation completion in April. The works were delivered in collaboration with the Southern Program Alliance (SPA) team and include a new automated smoke extraction and evacuation system for the existing train stations.

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