Mega cashed up as minority investors diluted in $7.2m rights issue

Minority shareholders in Mega were further diluted in a pre-Christmas $7.4 million rights issue largely bankrolled by its two biggest investors, which has left the file storage and encryption firm flush with cash heading into 2016.

The Auckland-based company sold 2.01 billion shares at less than 0.4 of a cent each on Dec. 23 in a 50-for-one rights issue, according to documents filed with the Companies Office. The capital raising was backed by Mega's two biggest shareholders - Beijing-based Li Zhi Min and Auckland-based Yang Jianhong - who injected $3.9 million and $2.1 million respectively. Li now owns more than half the company with 52 percent, while Yang's stake has increased to 29 percent.

Li and Yang have stumped up about $15.2 million of the $17.5 million raised over the past six months, paying $13.135 a share when they first joined the share register, before participating in a two-for-one rights issue at $1.79, then two 50-for-one issues at 7 cents and 0.4 of a cent in November and December.

In an email, chairman Stephen Hall said the company had plenty of cash with shareholders "providing good funding support."

In August, Mega said it had 22 million registered users and was adding new users at a rate of about 1.5 million a month. That was in spite of online payments firm PayPal and credit card firms Visa and MasterCard refusing to process transactions for Mega over claims its services weren't lawful, a view the file storage firm rebutted. 

The company has never broken out how many members have premium subscriptions. Regardless, the payment processing boycott means none of Mega's subscribers are paying, or have done since March last year when Paypal withdrew support.

Hall said Mega has set up several new payment arrangements, and has more in the pipeline.

"These provide a variety of payment methods that are appropriate to each country," he said.

According to the company's website, those include Austrian prepaid online payments firm paysafecard, cryptocurrency system Bitcoin, wire transfers, and via Google Play Store, Apple App Store or through a mobile carrier when using Mega's app.

The rights issue was taken up by 11 of the company's 20 shareholders, and coincided with the addition of three new investors - Liu Gongjun, Gao Meirong and Gumdigger Holdings - and the departure of Consul Investments, a unit of an Auckland-based private equity and investment banking group which had been Mega's third-biggest shareholder.

Gumdigger, an entity owned by Auckland property developer George Hunter, is now Mega's third-biggest shareholder with 8.4 percent.

Last year, Mega aborted plans to list on the NZX through shell company TRS Investments after a series of delays in gaining approval to go ahead with the deal, and later amended its constitution tasking the board to "take all reasonable steps to prepare the company for listing on a recognised stock exchange."

Those amendments also let the board issue shares, including pro-rata issues to shareholders, small issues of up to 15 percent of Mega's stock in a 12-month period, and an employee share scheme not exceeding 6 percent of shares on issue at a price that's the greater of either the immediately prior issue or giving Mega a 'pre-money' valuation of $95 million.

The latest rights issue valued Mega at about $7.5 million, little more than the new cash raised.

Mega was launched by Kim Dotcom in 2013 to replace his Megaupload empire, which was frozen after his high profile arrest in Auckland at the behest of the US federal government in early 2012. He stepped back from the firm to fight his extradition and bankroll the failed election campaign for the Internet Party, and more recently said he plans to launch a new non-profit, open source, free, unlimited and encrypted cloud storage service once his non-compete clause with Mega ended.

His estranged wife Mona, didn't participate in the rights issue and her interest was diluted to 0.2 percent from 7.6 percent.

(BusinessDesk)