This Week’s “Falling Knife”: Oceanus Group

OceanusShares in Oceanus Group (SGX: 579) were down 8% this week to $0.033, adding to last week’s 28% drop. This was after the company announced a 38-for-100 renounceable rights issue. The one billion new shares at $0.029 a pop is expected to raise $28.2m for the company after deducting costs of $797,000.

Oceanus Group, which farms and distributes abalones, has been unprofitable for the last three years. The company, which also franchises restaurants under the Ah Yat banner, has blamed a number of factors for its woes. These have included a need to write down inventories due to quality problems and a reduction in biological assets because larger abalones had died.

Over the last four years, Oceanus’ cash pile, which stood at S$115m in 2009, had withered to just S$873,000 by 2012. Meanwhile, total assets had shrunk from S$440m to $172m. Oceanus has also taken on debt, which it hopes to pay down with the proceeds of the underwritten rights issue.

Apart from repaying loans, Oceanus plans to use the fresh funds to beef up its working capital and reconstruct its production facilities. The company reckons it should raise enough money for its “present requirements”.

It is easy to see why Oceanus is in need of the cash injection. At the end of March, it had current assets of S$21m and current liabilities of S$38m, which equates to negative working capital of S$17m.

Oceanus has also pointed out that it may need to tap the market for money later on. However, because it is “uncertain of future market conditions and the challenges (if any), ahead”, it is “currently unable to estimate the amount required to fully exercise its business plan.”

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