Small Talk: XL Tech to borrow £18m against its AgCert shares

Imperial spin-out; Titan trading well; Beximco Pharma eyes AIM debut
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The Independent Online

XL Tech is the AIM-listed technology "incubator" which created and floated AgCert and which has been planning to recycle its investment to fund another generation of innovative new companies.

Yet news that it is hoping to take on about $30m (£18m) of debt secured against its £56m shareholding, rather than selling it outright in the market, could alarm the investors who were attracted by the company's lower-risk business model. XL Tech is one of a dozen incubator-style companies listed in London, which is fast becoming an international financial centre for the sector.

Early-stage technology company shares are notoriously volatile and AgCert has already crashed below its issue price after a profits warning. Securing debt against such stakes could leave the company vulnerable if it falls further.

However, XL Tech's founder and chief executive John Scott remains convinced that AgCert will recover its value and that selling any of its 27 per cent stake soon would give away that future value. Analysts said selling shares might also send the wrong signal to the market about XL Tech's view of the company's prospects.

AgCert installs plants at pig farms that reduce the greenhouse gases that would otherwise be produced by decomposing animal waste. The emissions saving becomes a credit that can be sold on the new international emissions trading markets. XL Tech sacked the chief executive four weeks ago after delays to the plant installations, and new managers are working furiously on plans to buy in credits from other sources to meet their supply contracts.

XL Tech's shares have fallen in line with the reduced value of the AgCert stake, but they remain above their October 2004 issue price. Investors have been attracted by Mr Scott's lower-risk business plan. XL Tech plans to create only one or two companies a year, directly in response to requests for new technologies from partners such Procter & Gamble.

Its next likely flotation, next year, will be TyraTech, which is developing a non-toxic pesticide, which kills insects - and perhaps malarial mosquitoes, typhoid-bearing lice and intestinal parasites - without harming plants or humans.

XLTech had $24m in the bank at the end of June, having spent a little more than $7m in the previous six months. The company says it will need a growing amount of money to fund the development of its companies. These fundings, it has said, "will take the form of either equity contributions or debt, with the latter expected to be repaid upon certain events, including in relation to exits".

Imperial spin-out

Another technology incubator, IP2IPO, will have a new investee company on the market from today, when Nanoscience, a cash shell, announces the acquisition of the IP2IPO-backed Toumaz Technology.

Toumaz is a spin-out from Imperial College London, where its founder, Chris Toumazou, is professor at the Institute of Biomedical Engineering. The company is close to commercialising Professor Toumazou's ultra-low power transmitter technology, which could be used for medical devices such as glucose and heart monitors.

Before that, it will be used to power battery-operated digital radios and to link iPods and other devices to hearing aids - both products which look like they could go into production through Toumaz's commercial partners next year.

Imperial College has 10 per cent of Toumaz, while Professor Toumaz has 10 per cent and IP2IPO has about 8 per cent.

Nanoscience floated in March, raising £500,000 at 5p a share to fund the search for investments or a big acquisition in the sphere of nanotechnology (precision engineering on very small items such as microchips). As well as paying for Toumaz in shares, it is raising £7.1m to fund further development work at the company. Its shares are being placed at 15p.

Titan trading well

Just a thought. Mining companies are increasingly complaining about a shortage of vehicles and equipment as they try to keep up with demand for their commodities by bringing new mines into production. Inflation is rife. Investors should take a look at Titan Europe, the manufacturer of wheels and tyres for industrial vehicles, which has been trading strongly.

Beximco Pharma eyes AIM debut

Indian companies have emerged as powerhouses in the global pharmaceuticals industry after exploiting the country's status as a lesser-developed nation to copy and sell drugs that are patent-protected in the rest of the world. India has lost that status, but not before Ranbaxy and Dr Reddy's have grown into giants. Now, industry players in neighbouring Bangladesh believe they can achieve the same result, and one company, Beximco Pharmaceuticals (BPL), is floating in London to raise funds for expansion.

The company makes more than 80 different drugs, including antibiotics. It hopes a new factory, built to European standards, will allow it to sell cheap off-patent medicines into the West. Longer term, there is also the prospect of producing generic versions of on-patent drugs for export to the developing world. Nazmul Hassan, the company's chief executive, said: "Our objective is to build BPL into a world-class manufacturer of pharmaceutical products."

Beximco Pharma, part of Beximco Group, Bangladesh's largest company, has raised £12m through the sale of global depository receipts (GDRs), a proxy for the company's shares, valuing the business at £58m. BPL's are the first GDRs to list on AIM, and it is also the first Bangladeshi company to do so.