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AIM-listed Teg places shares following cash-flow issues

AIM-listed organics recycler Teg Group, has placed shares on the stock market and created an open offer in a bid to raise £3.8m, following payment delays in its contract with Viridor Laing for the Greater Manchester Waste Disposal Authority (GMWDA) PFI project.

Teg has placed 30,766,850 new ordinary shares on the market at a price of 10p per share, raising approximately £3m. In addition, it announced an open offer of new ordinary shares to its shareholders, which will create £0.8m, if all are bought. The placing and open offer are conditional upon the agreement of company members at a general meeting on 6 July.

The 10p issue price is a 57% discount to the closing mid-market price of 23.5p per ordinary share at the end of last week (17 June).

The move is a result of a delay in payments of around £0.9m relating to the three in-vessel composting (IVC) facilities it has provided for Viridor in the GMWDA PFI project. In a statement on the placing, it says: “There are a number of payments and retentions relating to the three facilities that are now significantly overdue. These relate to various items including acceptance retentions, the return of liquidated damages relating to take over and disputes over payments for variations to initial scope of works.”

Teg is making “all considerable efforts” to resolve the issues. Matters regarding a third of the payment have recently been resolved and are expected soon.

In addition, Viridor has begun to review whether a fourth facility is needed at Greater Manchester. It was originally planned to begin construction at the beginning of 2011, a delay which Teg reports has had a “significant impact on cashflow”. It is hoped that the share placing and open offer will mitigate the delayed payments Teg has not yet received and will help to secure a project in Dagenham, which was to be funded by cashflow from the fourth site at the GMWDA.

Viridor is contractually obliged to go ahead with the plant. If it decides against it, Teg will claim for compensation and has prepared plans for staff redundancies as part of a cost-reduction programme across the Group. There have been ongoing delays with the fourth IVC facility, which was to receive the Instruction to Proceed (ITP) at the end of 2010 but this was postponed, largely due to the severe weather. The ITP was expected to be granted at the start of 2011 but this is yet to happen.

In other areas of the business, Teg’s plants also operated by them have been performing well with revenues and profits “increased significantly. The company continues to target growth through more Teg-operated projects, and further IVC and anaerobic digestion projects.

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