8 Jul 2013

Rakon sells major stake in Chinese manufacturing facility

9:04 am on 8 July 2013

The smartphone component maker Rakon is selling most of its stake in its manufacturing facility in Chengdu, China, to pay down debt and return the company's cashflow back to positive territory.

Rakon, which currently owns 85% of the factory, is selling all but 5% to the ZheJiang East Crystal Electronic Company for $US18.8 million.

That will enable it to write off $NZ32 million from its investment in the factory to date.

Managing director Brent Robinson says the smartphone business has been very tough for his company and having access to capital to fund its growth has been a problem.

He says Rakon plans to focus in other directions, while still keeping the opportunity to develop the business in a market that has got extremely competitive very fast.

Mr Robinson says the writeoff should go a long way towards negating most of Rakon's debt.

Rakon's shares jumped 4c to 27c after the announcement on Friday but the stock had fallen about 70% since last September.

The head of private wealth research at Craigs Investment Partners, Mark Lister, says he's reluctant to describe Friday's gain as any vote of confidence by investors.

"They're just in a tough spot where the outlook for their business is just getting harder and harder, prices are going down, demand's low, competition's going up, they were in the red $15-odd million last year, and net debt of $33 odd million looked like it would push up to 40 or 50 or thereabouts."

Mr Lister says Rakon has done the only thing it could have done, which was to look to sell an asset.