Charles Jillings, CEO of Utilico, energized by strong economic momentum across Latin America. Watch the video here.
London South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
I don’t see the warrants as a negative, if all taken they pay off the junior debt. But I don’t really see the point in guess the SP games if there is success.
The result at present is binary, what is important is what might happen to the SP in both outcomes.
Not long to wait.
Yes sorry 0.5%, you would not see a hedged short as the participant would still be net long.
All lenders received the warrants, circa 50m shares if all options taken, split between the 3 different strike prices.
I would be surprised if entities like LO would take full naked exposure to debt with a safety net of warrants that need operational success to cover. However speaking out loud and without looking, I’m guessing this debt has preference over equity on asset in event of default.
@sankeys I respect what you are saying but what I have just presented in that 2 part post is not "speculative" it is fact.
What you have suggested is what is speculative, and I have accepted could be true, but is far from guaranteed.
The other participants in the debt facility could well be long but only up to 2.99%, otherwise they would need to report on it. However, it is pure speculation with no factual support.
The issue I have here, and by no means do I wish to focus in on you or your ideas, is that the speculation is all about what is and could be wrong, and not what could also be very right.
I appreciate that those things that can go wrong are often the most costly and so should receive more focus, and i welcome that discussion, and I also recognise that the perceived failure at L2 pilot well, helps drive the questions
However, when that is all that is talked about, then the discussion becomes unhinged.
Some may well accuse me of the same behavior on the bullish case, and they may well have a good point but recently on I3E, if the likes of me weren't presenting the facts and what they mean for the bullish case, then there would be no bullish case at all.
What I see with the senior lenders, is a team of respected lenders who have backed the company on what is a very exciting drill programme, and have taken warrants as an incentive for their risk. A number of these lenders would then like to participate in the senior debt facility, which would then give them a long term consistent return on their investment in I3E.
So perhaps they are just that, good solid lenders awaiting either their 8% annual return, an even healthier return on the warrants, or the handing over of I3E blocks and their associated reserves.
The only questionable participant is Lombard who having played a significant role in the original 37p placement, is potentially coming at this from a different risk angle. However, even they have been very forthcoming with their updates on holdings, which I take to be a very professional sign of their approach.
With regards to the warrant strike price, I agree and the 48.1p average is the key level. However, these guys have upto 4 years to use them, and to a degree the whole junior facility may end up getting swallowed up in the senior debt facility, given several of the participants are active in both, we just do not know.
I favour a significant sell off of the warrants by the junior debt holders but at a significant premium to the 48.1p level, simply because if this company's share price returns to above 48.1p, it will be because they have something significantly stronger than that level of valuation. So then it will be about those junior debt holders balancing the time they have to execute the warrants, against the true value of the company, which reflects my point about positivity, because the rush to cash in all the warrants may not be as strong as some may believe.
Hi BBN,
It’s all speculative, however there is no data to suggest that the other participants in the debt facility did not have long positions in equity and/or they haven’t hedged.
Selling existing shares pre drill at 52p to ‘flip’ with the warrants is a given - original shares had a 100% risk, warrants at that strike zero risk.
However again it’s pure speculation and history, the live factor is the warrant strike prices in any success case scenario and any resulting overhang.
The other key point for me is that even when this stock is fully diluted, there will only be circa 150m shares in issue.
If we dare to dream for just a second, and say that S1 or indeed A3 come in at the mid case target, adding to the previously stated reserves base, be it this reserve base will likely reduce somewhat, then a 50p SP, delivers a circa £75m valuation. However, what will also happen is that the junior debt facility will be removed from the equation.
So I3E would be debt free as they head towards agreeing a senior debt facility.
Given the limited capital required to get to first oil (circa $90m including contingencies), and given the potential production per day (20,000 bopd quoted but even half of that would be substantial), a £75m valuation for me simply would not cut it, so if nothing else the buying demand would be there, such that the warrants would be worked through, be it they would need some time, and each warrant exercise would reduce I3E debt, further strengthening its balance sheet and de-risking the investment.
That headwinds would be there in some sort of form, is agreed. However, their ability to influence things, particularly if I3E do go on to secure a senior debt facility for phase 1, is in my opinion limited, be it I recognise that this is my opinion only. However, like I say, 150m shares for such potential speaks volumes as to where this could head with the right drill results and all that will come to pass thereafter.
(2 of 2)
However, what nobody knows is Lombards strategy when their is an oil strike. They have clearly taken a tactical strategic hit on part of their holding, so may wish to recoup this, I don't know, and nor does anybody else.
As for the warrants being forward sold, that is of course possible, but given the warrant holders can redeem the warrants against the debt, it is surely far more prudent to hold the warrants and wait until the full drill programme, which they in the main backed, is complete, and then assess.
We all quite rightly talk about de-risking by institutions but there is also a desire to maximise profits. Offloading warrants cheaply, prior to understanding the outcomes, is also a risk. This is particularly true when considered against the upside on offer, and the fact that the junior debt holders still get the 8% per annum, and several of them are also set to play a part in the senior debt facility.
That is not to say that the scenario as you have stated it cannot play out, its more about respecting the intentions and quality of the lenders, and their desire to ensure the best return from this venture, and that return may not all be about de-risking.
That all said, I would think that if I3E can deliver on their drilling programme, then there will at times be pressure on the SP from sellers, but we must also be open to the idea that a big strike on either Serenity and/or Liberator, or indeed confirmation of a phase 1 development, is also going to drive a significant and sustained uplift in demand for the shares, so said resistance may not be so significant after all.
(1 of 2)
@sankeys.
With all due respect, I don't believe your analysis to be 100% correct.
You said "given the major shareholders participated in the junior debt facility."
The only major shareholder that is declared as participating in the junior debt facility is Lombard Odier.
The RNS from 30th May states clearly ;
"binding terms with funds managed by Lombard Odier Asset Management (Europe) Limited for a £3mm participation in the junior loan note facility, the proposed terms of which were announced by the Company on 25 February 2019 (the "Junior Facility" or "Loan Notes"), a £2mm placing of new ordinary shares priced at 37p per share and warrants to subscribe for £3mm of new ordinary shares (collectively the "Lombard Odier Investment")."
The £3m in warrants was adjusted one day later to £2m in warrants "on the same exercise terms as the warrants included in the proposed Junior Facility."
So they received £5m total.
Those warrants are split between 3 series, with an exercise price of 40.7p, 48.1p and 55.5p, meaning the average is 48.1p
The total junior debt facility was revised to £22m, which means £19m sits with other lenders. What it means is that Lombard hold £5m in warrants at an average of 48.1p.
With regards to the remaining £19m, what we know from the 25th Feb 2019 junior debt facility RNS is this ;
"A European Investment Manager with assets under management in excess of £1 billion has agreed to subscribe for £12 million of the Loan Notes and, based on offers received, the remainder of the Loan Notes are expected to be issued to one or more syndicate members and/or offtake providers who are also potential lenders in i3's senior debt facility."
From the 3rd June 2019 RNS ;
I3E " is pleased to announce that it has closed investments with funds managed by Bybrook Capital LLP, BP Oil International Limited, funds managed by Lombard Odier Investment Managers group, and James Caird Asset Management in a £22mm junior loan note facility."
As of 30.09.2019, the only one of those companies on the major shareholders list is Lombard Odier, and as stated above, they are 'only' in for £3m of the total £22m.
So at best we are talking about £5m in leverage at 48.1p average, so circa 10.4m shares.
Lombard currently also hold circa 8.6m placement shares, all taken at 37p.
Despite the assumed strategy, Lombard have not reported a further sale of their holding since 24th Sept, so approaching 1 month. That's not to say they haven't been but given their punctuality on reporting, and their close proximity to 9%, the percentages say they have stopped for now.
The company website reports they have actually increased their position to 9.18% from the 9.07% reported on 24th September.
Also, Lombard started selling their holding down at the end of June, when the SP was fairly consistent at circa 48p, which indicates the sort of profit range they were seeking.
Yes, post L01 at a loss, whether this was offset at the profits taken pre drill unclear, even so as an ii you would still action a strategy to reduce risk. By selling at 30p they may have taken a 25% loss on original shares, but in the case of bad news going forward they take out further loss. On the success case they still gain most of the upside due to the option of warrants. You lose 10/12p upside but take out 100% any further loss, I’d take that.
In terms of short tracker this only shows net positions over 5%. So I could have 9m shares short but if I hold 10m it won’t show.
The better data to look at is stock on loan monthly to see what potential hedged positions are open.
I think the warrants are key, given the major shareholders participated in the junior debt facility.
Pre L01 it was clear that existing shares were being sold at a % profit to what the warrants would be converted at. After L01 it would make sense to firstly derisk but secondly sell existing shares and have upside exposure in the warrants, the risk goes as they have no liability to excise in event of failure. These warrants are very material to the SP as they dilute by circa 50%. On any rise these strike prices become important as they drop into profit.
There is also the theory that these warrants have been hedged at higher prices, which could have increased current SP weakness, but again it n success lead to shorts closing and intensify any price rise.
When you say overhang, are you talking about the warrants at circa 40p, 48p and 57p? About 50m shares if all are taken.
It’s not going to hit 100p - adding £80m to the market cap off the back of one drill. With a S1 result I would suggest a top of 40p. If L01 had been an n target then it would probably be hitting 100p, but alot of confidence and momentum has been lost. Sometimes they are more important than NAV values that PIs fixate on but rarely are align with the SP.
It’s more a guess than an opinion ? What your trying to say is you would like to see S1 fail as you will get to trade the L03 appraisal well off a £10m market cap, I think there is a number of investors with the same strategy, and some believe if S1 hits they will still get in Sub 30p. I’m clear with my strategy, and it will only come undone if L03 doesn’t spud after S1.
My Opinion is Serenity will not Deliver. They will say insufficient pressure in the Well / Not enough Contingency as predicted / Failed to hit / Oil Viscosity not to spec.
Current Holders May have been rinsed here and the only ones left are people that don’t know anything apart from what RNS tells you.
News must be due soon. If it’s Bad then I’m in at 10p for Liberator. If it’s Good then I wish you all a Best of luck. Tick Tock ...