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They can leverage high yield on the debt IF this get's turned around and as an equity holder they also get equity value. It's a wonderful position to be in. You win twice. It also gives them utter control to use the goodwill, reputational capital, to enhance their other position.
None of that requires this to be listed, listed only gives them future liquidity and schmuk's capital.
LOL, "financial magic by Clive Whiley, a merchant banker that specialised in these somewhat opaque deals that even the Board had problems fully explaining to shareholders years ago at that AGM." If you don't understand it, why would you ever want to invest in it?
"Yet in doing this, Phoenix are destroying the equity value and let's face it, a rescue rights issue is not going to be possible from general shareholders."
Sadly there is no longer any value to the equity any more. I know the nominal sp is 2.5p but the reality is this an involvent company held together by debt as preiously mentioned. There may be an instance when the share price goes to 4p, but it could equally fall to 1p. It is extremely high risk to be a holder here and the reason no directors have bought in.
The future of SG lies with Phoenix whose support is not ad infinitum.
I don't think much of the NFT's and I can't find any of my philatelic friends with a good word to say about them. Another costly cul-de-sac for SG.
Pentire / Devon, what chance do you think there is of Phoenix wiping off a decent chunk of the debt in the near term?
VERY UNLIKELY. It's their ace in the hole.
Pentire / Devon, what chance do you think there is of Phoenix wiping off a decent chunk of the debt in the near term? It is not being serviced, and payments are being waived currently, so it is an albatross round both sides necks.
Presumably if the debt was cut to say £5m in a special gratis move by Phoenix, that would massively increase the net asset value per share?
Ultimately, what is the point of Phoenix loading up SG with debt if SG cannot repay it?
With their 58% controlling stake, Phoenix already control everything at SG, it seems odd that they are content to increase the debt and see no return from their investment.
Pentire, I note your comments on this, but my point simply is that the backers of Phoenix signed off them spending £19.45m to acquire the 58% stake. How the nuts and bolts of it were arranged in reality was a bit of financial magic by Clive Whiley, a merchant banker that specialised in these somewhat opaque deals that even the Board had problems fully explaining to shareholders years ago at that AGM. the point is that Phoenix's backers paid £19.45m at the time - that got them the 58% shareholding, a £10m debt facility and so on.
As one looks at Phoenix now, their financial involvement in SG today is quite large - they have tied up £19.45m plus they are owed £14m plus the $8m for the 1c stamp, and now the additional debt taken onto the balance sheet for Mallets. It must be quite a sizeable amount of money all in all.
I have no doubt that Phoenix will roll over the banking facility next year, but this is not the point. The company is over indebted currently and since the main shareholder controls their spending, is unable to change this. In fact it seems to be a deliberate policy taken by Phoenix to increase SG's debt, which seems odd.
Yet in doing this, Phoenix are destroying the equity value and let's face it, a rescue rights issue is not going to be possible from general shareholders. Perhaps a solution is to issue Phoenix with more shares in a rights issue that only they subscribe to, giving them say a further 400m shares at 2.5p each in exchange for £10m cash which is then used to repay debt?
I don't know the solution here, but since there is no visibility on the NFT position, one can only speculate.
Pearls
Please note that Phoenix paid only £6.2 million for the 58.09% share. The rest of the "up to £19.45" was for: the intercompany SG Guernsey debt (£2.75 million), which was used by SG Finance to pay of £7 million of debt to RBS- Phoenix then swapped the SG Guernsey debt (possibly plus some cash) for the £12.6 million of the Guernsey "investment" inventory, which they now market through SG; the rest of the debt to RBS "up to £10.5million"was acquired by Phoenix at a huge discount, perhaps as little as £4-5.5million; then another £5 million was available for loan to SG - all this debt at 5% per annum. Hence SG's debt to Phoenix SG over £14 million and climbing. Phoenix (SG) is the controller and SG is just their "zombie"
so here are some of the risk as I see them:
1, SGI becomes a high yield debt vehicles, they benefit from any growth to service debt
2, Equity gets diluted if they get substantial share price action in a debt for equity swap
3, NFT is successful, but long term growth is migrated to Phoenix's other vehicle and SGI become a subordinated partner.
- - That leaves them with the residue stamp trading and publication business and their reputation gets leveraged.
4, They go "private"
Having such control of the business though equity and debt should send retail investors scuttling for a bunker. They win almost any vote, not requiring 75%, and if not, they call in the debt. That's a bid red flag.
For SGI there's very little in the way of profit, so having £20m in debt, balance sheet and stamp, tied up is hardly worth the avoidance.
That doesn't mean that if this is successful Phoenix don't offer more finance, that deliver them a profit, and is enough for SGI to service it's increased debt obligation....but what's left over for shareholder?
There may be some muted increase in the share price, that benefits it's main shareholder the most, but it will should always be muffled by the level of debt over the short term/risks. Highly speculative at best. You have to avoid being the schmuk at the table when the risks are so weighed against you.
Devon, do you believe Phoenix are loading SG with debt deliberately to be able to then use that tax loss position against other investments?
If so, this could continue indefinitely?
Devon, thanks for your comment. Much as we may cross swords on things, I do appreciate your knowledge and constant warnings on debt levels. For me the Phoenix position is a bit of a hybrid one, as they are both the main shareholder / banker / financier of the company. I do not think there's a reasonable risk of Phoenix reversing SG into their NFT vehicle simply because with the status / Royal Warrant position of SG they would be very foolish to risk losing that - SG needs to stay an independent operation. Reputation is everything, and is one of the key reasons why SG's recent auctions this year have been so successful.
Rather, I can see the NFT operation being molded into SG as SG's revenues become more based on NFT revenue. If that happens, logically the NFT operation would be brought more in house. I can also see the NFT's be put on one of the exchanges to increase their profiles.
"On the other hand, it cost Phoenix £19.45m a few years ago to buy 58% of SG's share"
it's become a smaller and smaller part of their listed vehicles assets. Last time I checked it was under 3% of their NAV. That's hardly a large exposure, and it means they are unlikely to waive the debt, quite the opposite in fact, loading more debt gives them more upside, the one's most likely to lose out with be retail investors who have no security, beyond the Companies Act, put your rose tinted spectacles aside, and over ambitious predictions, for a moment and accept the equity for Phoenix is now marginal in comparison to the debt and consider the risks of a successful NFT campaign, they could quiet easily reverse this part of SGI into there other NFT vehicle and leave SGI retail holders high and dry. SGI is just a very speculative investment. I'd much prefer to be in the debt if it was available, even though it's in default, because of the anticipation of junk level yields if they ever do manage to serve it again.
I have to admit that I am really puzzled over Phoenix's intentions regarding the level of debt at SG. Even I, with my most rosy glasses on can see the level of debt is an issue, yet even recently the 1c purchase was made at the expense of yet another debt heaped on SG.
On the other hand, it cost Phoenix £19.45m a few years ago to buy 58% of SG's shares, so I cannot see them just waving goodbye to that, and they remain the company's banker and financier. That said, what is in it for Phoenix if the shares are currently trading around the level they acquired them for, the debt is at very high levels and is not being repaid, and the current level of trading is frankly going to see Phoenix having to waive the interest charges into the near future at the very least. There's also no hope of a dividend in the near future.
It would be better to see Phoenix waive the debt, or at least the majority of it, as this is clearly suffocating SG's financial position. Add on the liabilities from the recent Mallet bankruptcy and I cannot see how SG will feasibly turn this round.
Therefore something has to give, yet each potential positive development such as the NFT initiative, is met by a contrary negative issue such as the Mallet position.
I do not know how big the NFT position will grow to be, I don't think anyone else is issuing stamp NFTs but the basic issue currently is that the balance sheet is not adding up. Indeed the recent balance sheet showed the group had a net position of -£1m net liabilities.
I hope this matter is addressed next week at the AGM and that shareholders quiz the Board over how the balance sheet is going to be stabilised as this cannot go on. Perhaps NFT's will rescue SG and given the plan for the 1c NFT to raise £8m perhaps this is possible, especially if a string of such NFT's are then issued over the year, but the company needs to provide much more guidance now to reassure investors and enlighten us on the way forward.
Thanks Pearl for reminding us how often insolvency and administration have cropped up in SGI's trading history.
Many times it's needed rescuing and hit the buffers.
I suppose some of you on here also thought it was a terrible day when SG put its Guernsey operation into administration a few years ago?
Herdie, who is this Tommy you keep on referring to?
Comedians today receivers tomorrow, Can’t wait for the update on the NFT that should guarantee a giggle. Bet offer still stands old bean. How’s Old Tommy holding up?
I see that today's announcement is bringing out the comedians
"the Directors are hopeful that on conclusion of this process some of the assets will be distributed to Group companies."
you mean distribute the liabilities surely?
"Its a £10-£15 million turnover company "
- with North of £14m of debt. Which it's unable to service.
From what I am hearing the NFT BG share scheme is adding up to being a disaster. SGI is a simple buying/selling company and somehow a succession of utter tankers have failed to get to grips with this and continually dream up novel schemes, shop refurbs, and who knows what.
Its a £10-£15 million turnover company and could be run by 20-30 staff, plus outsourcing to marketing companies.
Oh well, the very slow motion car crash continues.......
I'm wondering if SGI have sneaked out this "good news"....whenever has insolvency been good news...because they are going to deliver even more awful news on the 22nd....there could be a blood bath if they aren't able to demonstrate NFT success....nail biting stuff.
No wonder you wouldn’t take that bet I offered on multiple occasions Pearls, What an absolute S££t show this is, How’s TW by the way ? hope he’s choking on his cornflakes this morning !
I agree Carpe....it will cost them in legal fees. I can't imagine the landlord will just roll over, they haven't so far.
It's surely going to dent the interest in the NFT from potential US buyers.....UK stamp collectors, well they are used to SGI's regular financial crisis LOL ...I'm afraid this time it could all be fatal. We are on a knife edge here, now.
"the Directors are hopeful that on conclusion of this process some of the assets will be distributed to Group companies."
Likelihood of this is zero.......
So now they've completely defaulted on the debt and the debt is payable on demand....
If the NFT isn't a raging success then there's a very good chance it's curtains time and they call in that debt, sell the assets and leave the shareholders high and dry.
For the outside world: would you want to hold a fractional share in an asset that's likely to be used in a fire sale to repay debt holders? Tarnished before it even gets out of the stable door.
These things are a massive distraction for management, Chapter 11's can go on for ever...I know, I've been there....it's all such a mess. Insolvency, debt default and terrible finances. Phoenix will be planning their exit as I type. One false step and it's...Hasta la vista, baby!
What a pain in the proverbial this was turning into, also taking up a lot of management time and causing continuous aggravation including to the balance sheet.
Now it’s entered into Chapter 11 bankruptcy proceedings, ring fenced from the U.K. holding company, we can all move on.
Good news, allowing management to now focus on stamp and coin dealing, and the new crypto/ NFT businesses.