COLUMN

Economic worry and the nature of risk

Almost the only investors who will put up capital to build enterprises in Canada are either foreigners or governments

DIANE FRANCIS April 23 1990
COLUMN

Economic worry and the nature of risk

Almost the only investors who will put up capital to build enterprises in Canada are either foreigners or governments

DIANE FRANCIS April 23 1990

Economic worry and the nature of risk

COLUMN

Almost the only investors who will put up capital to build enterprises in Canada are either foreigners or governments

DIANE FRANCIS

The sad story of Moli Energy Ltd., a Vancouver-based firm that had developed a revolutionary rechargeable battery cell, is a metaphor for what is wrong with Canada. This situation is by no means restricted to British Columbia, and has become a pattern throughout Canada, whether it is money blown on Sprung’s ridiculous greenhouses in Newfoundland, or government loans to strip clubs.

One of Canada’s biggest economic woes is the fact that virtually the only investors who are willing to put up risk capital to build enterprises here are either foreigners or governments. Canadians generally prefer to put their money in the bank or into unproductive, albeit profitable, real estate speculation. They stay away from Canadian stock markets in droves. The disdain for stock markets is mostly due to the fact that exchanges like Vancouver’s or Alberta’s casinos are riddled with scandal and ineptly regulated.

The result is that investors have little confidence in our capital markets and for good reason. That may be why stock market participation here is only slightly more than the U.S. rate, despite the fact that Canadians save at least a third as much money as Americans. I’m not against foreign investment because no country can afford to ban it and expect to trade elsewhere. But we must encourage support by Canadians of Canadian enterprises or else we will end up as a nation of waiters and lumberjacks.

Moli is a case in point. And a Huntsville, Ont., investor, Ed Woolven, is a victim. He bought Moli stock worth $5.90 a share back in 1986 when the company went public, with British Columbia putting up $25 million and the public another $25 million. The potential market for Moli’s rechargeable battery, made from lithium, was enormous, and governments plus blue-ribbon businesses were behind it. The stock eventually fell to $2 in 1988 as development dragged on, but Woolven hung in there after reading a letter to investors from Moli in

June, 1989, that promised $20 million in fresh capital, including $6.4 million in loans from the federal and B.C. governments. “I thought this was a good investment,” says Woolven.

Then, last Aug. 10, one of Moli’s batteries in a cellular telephone in Japan spontaneously caught fire and injured a consumer. The batteries were recalled on Aug. 12, as headlines deriding Moli hit Japanese newspapers. And on Aug. 22, Hugh Wynne-Edwards, then Alcan vice-president of research and development, was parachuted in as Moli’s chairman. But it was too late. “When I got there, I asked to see the books. We had three weeks’ cash left. I asked, ‘Where’s the $20 million I read about?’ But the problem was, the moment it came in it went out to pay for this huge overhanging wave of overhead.”

Overheads, including payroll, plant operations and debt load, were ruinously high because Moli made a fatal mistake and built a $30-million production facility in Vancouver before the product was fully tested and developed. “When a beverage company wants to sell a new flavor, it picks a city, does taste tests and gets all the warts out before its launch,” says Wynne-Edwards. “This was not done here. There was a leap of faith from the lab bench to

full-scale automation.” The situation was compounded because the client was the giant Nippon Telephone and Telegraph Co. in Tokyo, one of the toughest markets in the world.

Wynne-Edwards, now a scientific adviser to Teck Corp. in Vancouver, says that because politicians had put money up, Moli’s management felt that there had to be some political payoffs in the form of instant job creation. “Back in 1985 and 1986, British Columbia was still dead in the water without economic recovery,” he says. “The government was anxious to get moving and create jobs. So $50 million was raised and a plant was commissioned in September, 1987. Immediately, the company began to sink by the stem, with an outflow of $1 million a month through 1988 and 1989.”

Another problem was that one of Moli’s driving forces, the late Norman Keevil, chairman and founder of Moli, was a mining man, not an industrialist. “Keevil was a mining promoter, a great man, and in mining you are used to committing large chunks of capital before you are ready to come to market. So they went ahead and built a $30-million facility before they had a tried and true product,” says Wynne-Edwards.

British Columbia pulled the plug on Moli in February, 1990, by calling in a loan payment, and the giant Japanese trading company, Mitsui & Co., has bought the company for five cents on the dollar—$5 million for a company in which about $100 million total was invested. Wynne-Edwards added, “The Japanese understand that this type of innovation is difficult and maybe requires $200 million and 15 years.”

However, the Japanese may not pull it off either. There are other battery technologies that may beat Moli’s to the marketplace. But that is the nature of risk capital and Mitsui understands that. Here in Canada, Moli is another case of Canadian mixed enterprise gone wrong: governments invest and then do not, or cannot, monitor the managements. Management, in turn, becomes more expert at finding government money than good products or personnel. Companies with government sugar daddies have also tended to spend money as though the well will never run dry. On top of all that, government participation in a mixed enterprise appears to little investors like Woolven as a form of guarantee of success, which may in fact be the opposite of what usually happens.

Not surprisingly, Woolven is upset because he has lost several thousand dollars. He has also lost a second time, indirectly as a taxpayer, because the feds put $10.1 million into Moli through various grant programs, and British Columbia, $25.2 million. Moli is a made-inCanada tragedy with taxpayer dollars and personal savings poured down the proverbial drain. It is the type of story that convinces the Woolvens of this country to stay away from the stock markets and put their money in the bank or in T-bills, thus merely financing government deficits. That means less private capital available to create wealth from Canada’s fledgling technologies. Unfortunately, the task may be left to foreigners or else the task is not done at all.