Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
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I suspect that the consolidation will come first. That will increase the share price. That will be followed by the issue of new shares with their price(s) based on the new, consolidated, share price. The overall values of the holdings of existing shareholders should remain unchanged, until the markets open after the plan is complete.
"I imagine AVO will only want to call one EGM on one matter"
They need to subdivide (multiply the number of shares) in order to issue new shares, and also wish to consolidate (divide the number of shares) as there are there are too many shares.
It will be interesting to see how they word the motions.
I still think that the main stumbling block is paying down the old debt with shares.
I suspect it is no coincidence that this is the first mentioned task in the plan, and the book build is placed third on the list.
"The prospective plan comprises three elements: (i) a debt to equity conversion (the "Debt to Equity Swap"); (ii) the Company receiving a new interest-bearing secured loan; and (iii) an equity fundraising (the "Equity Fundraising") (together the "Prospective Recapitalisation Plan")."
Three weeks on Monday since we were told of the plan. The cash ran out end-May, so I can only assume that salaries and bills haven’t been paid for June & July, awaiting bridging finance. So that’s £3-4m just to cover that period, and the same again through to end-September (ie EGM and implementation). I assume the potential lender there wants security that the company will be able to repay, so they’ll want to see either an offer for AVO or a well-developed book-build for the equity raise. So could be a little while yet.
I imagine AVO will only want to call one EGM on one matter - either the Recapitalisation Plan or an offer to buy them. So it’s possible that the Recapitalisation Plan is in reasonable order but potential buyers are still working things through. Just speculating whilst we wait……
Recent, unplublished results, show FLASH spares healthy tissue and is even more destructive to tumours than expected
Great to watch and just reinforces why AVO and LIGHT must succeed, the Christie Foundation Hospital highlighted while pioneering and successful required a significant larger footprint and much more shielding than AVO’s LIGHT. The Linac design of LIGHT generates lower levels of secondary radiation compared to cyclotron systems such as the Christie reducing the need for extensive shielding and therefore huge cost savings . As we know AVO’s LIGHT is designed therefore to be located in inner city areas occupying as planned within the basement area of 141-143 Harley Street which has just 15,000 sqft area in total.
AVO with CERN are clearly pioneers of the next generation of disruptive technology with LIGHT making proton beam therapy more accessible and cheaper for future generations and builds on their success with traditional cyclotron systems. Hospitals like the Christie will continue to play a major part and hopefully with AVO & CERN more proton beam therapy centres will be affordable and accessible to a wider population.
Https://www.bbc.co.uk/iplayer/episode/m001pbj5/click-a-collision-of-science-and-fiction
Https://citywire.com/new-model-adviser/news/wh-ireland-seeks-5m-to-avert-collapse-after-fca-talks/a2422668
Interesting development as they are handling any potential Nasdaq potential partners
I would hope we hear some developments next week regarding the consolidation, sub division and financing as everyday that passes is costing a great deal to those covering any bridging loan
" I suspect the prospective lender would need more security than just some of the existing debt being swapped."
iWTO,
It is worth noting that the lender prepared to offer the £10m loan, is the same party who recently withdrew a proposed £8m loan offer. This led the cash shortfall, which resulted in the company's shares being suspended.
I suspect that they were unhappy for their £8m to be spent paying off old debt, so wanted most of this paid off before they would agree to lend the company any more.
I believe that, if the rescue plan does succeed, every aspect of the plan, including the prospective recapitalisation plan, the consolidation, the subdivision, the loan, the Debt for Equity Swap, the new share price and new nominal price, etc. will be agreed and finalised while the shares are suspended from trading. If those efforts are successful, then, when the suspension of the shares from trading is lifted, the market will be faced with a fait accompli covering the entire package. Only then will the market have its chance to react.
IWTO,
You may be right about the timing of the loan coming after everything has been passed at the EGM. However, the Equity Raise cannot happen before the EGM, unless by some miracle the share price moved to above the Nominal share price. And as the shares are suspended from trading, that would probably be impossible.
Thinking about it, I am not even sure that the Debt for Equity swap can happen while the shares are suspended.
As for some suppliers and financial advisors being offered a haircut; if they pay at the rate of 2p per share, the dilution will be far, far higher. I am pretty sure that they are trying to squeeze the creditors, otherwise why use the term "Issue Price", and why fail to explain this term?
The other thing to consider is if it all happens at once, there is no time for the sp to recover, and consequently the subdivision required to issue new shares would not be to 5p as in my earlier post. It would be to 2p or less. Once again vastly increasing the number of shares in issue.
Kenj, thanks for your thoughts. On the $10m loan, the RNS states that this is subject to the Recapitalisation Plan being agreed and implemented in full. I suspect the prospective lender would need more security than just some of the existing debt being swapped. Therefore, I think all elements - debt-to-equity swap, loan and equity fund-raise - would need be approved at the EGM as a package. Given that, I’d be surprised if the loan is arranged first such that shares can begin trading - I’d have thought the D2E and equity raise would happen swiftly before that. So it’d be a “big bang” resumption.
And that then challenges the notion of some existing lenders accepting a haircut on their loans. I don’t think this would be expected or necessary in a scenario where “everything is approved as a package at the EGM”, because the equity raise pretty much guarantees the company’s survival. So I’m not sure we’ll see any haircut.
It will indeed be interesting Meldrew44.
While much of my post was speculative, the one thing I am certain of is that the £10m loan and equity fundraising are dependant on first securing a deal with their creditors to pay off a large portion of their debt. This will be at the mythical Issue Price, which is sure to be lower than 25p.
If they fail to reach an agreement on this, then the whole fundraising project collapses.
Sorry there was an arithmetical error in the last but one paragraph - mixed up my 25p and 5p shares. Corrected and rephrased below:
Following part (i) they have an additional 300m 25p shares = 842,573,869, and are likely to need at least a 5 for 1 subdivision, which would result in there being 4,212,869,345 issued 5p shares.
The part (iii) equity raise of c£70m in new 5p shares would result is issuing 70m x 20 = 1.4bn new shares. A grand total of c5.62bn 5p shares.
(Equivalent to 1.1bn 25p shares - or roughly double the current number.)
Thanks for your thoughts kenj.
It'll be interesting to see what happens.
"Advanced Oncotherapy (AIM: AVO), the developer of next-generation proton therapy systems for cancer treatment, announces a prospective recapitalisation and funding plan to raise up to c.£110 million. The prospective plan comprises three elements:
(i) a debt to equity conversion (the "Debt to Equity Swap");
(ii) the Company receiving a new interest-bearing secured loan; and
(iii) an equity fundraising (the "Equity Fundraising")
(together the "Prospective Recapitalisation Plan").
Financing transactions - Target Amounts
(i) Debt to Equity Swap and debt repayment = £ 25.7-£37.4m
(ii) £10 million secured loan = £10.0m
(iii) Equity Fundraising = £61.7-£73.5m
TOTAL = c.£110m"
How it might work. Each step is dependant on the previous step being completed.
(i) Debt to Equity Swap and debt repayment = £ 25.7-£37.4m
Let's assume that a mid number of creditors accept this - and £30m of debt is agreed to be converted into shares. This will be repaid by issuing 25p shares, but suppliers and borrowers will be offered to settle the debt with new shares at the notional Issue Price of say 10p.
To repay £30m at the current 2p price would require issuing 30m x 50 = 1,500,000,000 new 25p shares.
To repay £30m at a notional Issue Price of 10p would require issuing 30m x 10 = 300,000,000 new 25p shares.
In real value the creditors will have received 20p in the £, or one fifth or what they were owed. An 80% haircut may seem harsh, but the company is threatening administration.
(ii) £10 million secured loan = £10.0m
This has been agreed with the lender subject to AVO clearing most of the old debt.
At this point the company's shares suspension could be lifted.
(iii) Equity Fundraising = £61.7-£73.5m
By completing (i) and (ii) by issuing 300m new shares, clearing most of the old debt, plus arranging a new £10m loan, the share price would be expected to rise, as the threat of insolvency abates. However, it is unlikely to rise to 25p. So the company will need a subdivision before they can do this. Assuming the sp rises above 5p:
They have an additional 300m shares = 842,573,869, and will need at least a 5 for 1 subdivision, which would result in there being 4,212,869,345 issued shares..
The equity raise of c£70m in new 5p shares would result is issuing 70m x 20 = 1.4bn new shares. A total of c1.82bn shares.
Now the visibly shocked directors will be able to perform their hoped for share consolidation. However, they would be wise to keep below the trading value of the shares, or they could soon again find themselves unable to issue any shares.
I've changed my opinion about the possible amount of the consolidation. I now believe that the target share price might be between 20p to 25p, which would result in a 10 to 13 times reduction in the number of shares. A 10 times reduction would cut the number of shares to 54,257387 which would not be far off the result of the 2016 25 to 1 reverse split that reduced the number of shares to 57,780,361. The nominal sp of 25p would need to drop a bit to accommodate the overall plan. Before the 2016 reverse split it was 1p. It became 25p at the same time as the 2016 reverse split. If history repeats itself it could drop to 2.5p or less.
In that case, perhaps straight after the EGM?
"My guess is that might be by the end of this month."
Not a chance of that happening by then Meldrew44.
To consolidate or subdivide the shares, they need to call a general meeting. They have to give at least two week notice to call an EGM.
I expect that the consolidation will not take place until AVO has obtained the agreement of all parties who will be affected by the prospective recapitalisation plan. Everything, including the consolidation and sub division will then probably take effect at more or less the same time. My guess is that might be by the end of this month.
I cant see any consolidation until they are re-financed or sold. I'm sure there are ways and means to achieve the BODs plans, so looking ahead, if part or all sold as per rumors, for say £200M, would leave about £100M for shareholders after debt paid off, 14p. And same if still public, cashed up to end of human trials. Maybe worth a lot more as a going concern hedging successful trials and future production.
As regards issuing new shares; it makes absolutely no difference whether the number of shares is halved following a share consolidation, or doubled with a share subdividion. The actual share value is almost certain to double or halve accordingly.
Eg:
Nominal Price = 25p - Actual Share Price = 2p - Current
Nominal Price = 50p - Actual Share Price = 4p - 1 for 2 Consolidation
Nominal Price = 12.5p - Actual Share Price = 1p - 2 for 1 Share Split
With either option the Nominal Price is 12.5 times higher than the actual trading price.
New shares cannot be issued below their nominal value, so none of these options allow the company to issue any new shares.
To issue new shares, AST would need to perform at the very least, a 25 for 2 share split to reduce the nominal share price to 2p. That would multiply the number of issued shares by 12.5 times. The exact opposite of what the directors want.
Following the last consolidation in June 30 2016, there were 56,780,361 - 25p shares in circulation. The current number of 25p shares in issue is 542,573,869.
That is an increase of 9.5 times in 7 years.
Who exactly, if it wasn't the directors, authorised a rights issue, placings, issue of warrants etc, that caused this vast increase in share numbers? So the board moaning about there being too many shares seems a bit rich to me.
Indeed, Kenj, but what I’m now confused about is that raising equity at a *low* share price (which “optically” might be more palatable) doesn’t make sense either, if existing shares are split pro-rata. It seems hard to demonstrate to new investors that they are investing at a price that might not immediately go down (though it may not).