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Continuation
Hurricane’s position subsequent to the 2017 placement and CB issue was surely that:
- It had to ensure that it had an income stream / capital to service the interest payments from July 2019 – the first eight quarterly interest payments having already being lodged in a US bank.
- In July 2022 it had to be prepared to increase the current number of shares issued by, a not insignificant, 18.4%. Or, alternatively not dilute shareholders and substitute a cash payment in lieu of the share issue to the CB holders.
Hurricane’s current position on the matter of the CB is that:
- In July 2022 it has to dilute a majority of a shareholders holding by a significant 18.4%. This significant dilution can be avoided by selecting the option available to Hurricane, of the cash alternative (calculated by reference to the volume weighted average price of an Ordinary Share over a specified period). Now whilst that specified period is not currently known it is not unreasonable to speculate that the calculated SP might be the current 2.5p. The required cash alternative would be c£11million or cUS$15million, which is less than the annual current interest being paid on the CB’s and well within Hurricane’s current revenue and cash.
I cannot answer for the current trading price of the CB’s. Neither can I answer as to why the CB apparently holders agreed in 2017 to Hurricane’s mandatory conversion of the CB into the 442,307,692 shares at maturity in 2022.
I agree; the whole situation seems confused and illogical. I may have got this wrong! But as it stands no contributor has been able to counter my reasoning - which is based on research and the documentation provided by the company in 2017. Perhaps I am shouting that “the Emperor has no clothes,” or perhaps I am the mis-guided uneducated “fool on the hill.”
Delighted to be corrected and educated with an alternative coherent and resilient factual counter argument that clarifies the situation beyond doubt.
You are spot on. The shareholders will get the carcass and what’s left of it.
Can the company refinance the repayment of the bond? Can they not get a bank loan to repay the bond holders? Interest rates are at basement levels. To show the bank the company’s credit worthiness, pay the bond holders in July next year too with the cash HUR is sitting on?
What are the options available to HUR? A farm in too could be on the cards?
dflynch,
"Neither can I answer as to why the CB apparently holders agreed in 2017 to Hurricane’s mandatory conversion of the CB into the 442,307,692 shares at maturity in 2022."
Because the "set" share price for conversion was $0.52/share.
Here's the extract I read:
"The Convertible Bonds will be convertible into fully paid Ordinary Shares with the initial conversion priceset at US$0.5200, representing a 25 per cent. premium above the Placing Price of 32 pence per Placing Share(converted into US$ at a £/US$1.30 exchange rate). This implies that there will be approximately423,076,923 to 442,307,692 Ordinary Shares underlying the Convertible Bonds as at the issue date of theConvertible Bonds, depending on whether the over-allotment option is exercised, although the number ofOrdinary Shares underlying the Convertible Bonds may change from time to time as the conversion pricewill be subject to adjustment pursuant to customary anti-dilution provisions dealing with, among otherthings, share consolidations, share splits, capital distributions, rights issues and bonus issues.Upon conversion of the Convertible Bonds, the Company may elect to settle its obligations by way ofdelivery of Ordinary Shares, payment of a cash alternative amount (calculated by reference to the volumeweighted average price of an Ordinary Share over a specified period) or a combination of the two."
Note: "conversion pricewill be subject to adjustment pursuant to customary anti-dilution provisions dealing with, among otherthings, share consolidations, share splits, capital distributions, rights issues and bonus issues."
HUR are in talks with bondholders for restructuring and debt for equity swap.
The result will dilute shareholders "significantly".
I think HUR shareholders will be left with approx. 30% equity, if not less.
Slift.
I fully understand why the number of shares that will be issued in July 2022 will be 442,307,692 and I have previously referred to this.
What I said in my latest contribution, and what seems to have confused you is “…why the CB apparently holders agreed in 2017 to Hurricane’s mandatory conversion of the CB into the 442,307,692 shares at maturity in 2022.”
The reason for my statement is that I would have expected the CB holders to insist that the option of taking the cash, or shares was theirs, and theirs alone, not that of the Issuer. The CB holders in 2017 effectively gave the “whip hand” to Hurricane and thus removed the threat of Hurricanes losing its assets should they not make the required interest payments, or fulfil their obligations at maturity. All Hurricane has to do is issue the 442,307,692 shares. The CB holders have no choice but to take the shares – they cannot demand US$230 million. Well done Hurricane!
Your comment about the conversion price is correct – but it only comes into effect if Hurricane were to issue further shares or take some further measure resulting in dilution of the shares the CB holders are to receive in July 2022. It is therefore currently irrelevant.
Given the paucity of information I wonder how you managed to derive the figures you have broadcast. Do tell.
dflynch,
"All Hurricane has to do is issue the 442,307,692 shares. The CB holders have no choice but to take the shares – they cannot demand US$230 million. Well done Hurricane!"
This is a ridiculous statement to make.
The point I was making in my last post is:
"although the number ofOrdinary Shares underlying the Convertible Bonds may change from time to time as the conversion pricewill be subject to adjustment pursuant to customary anti-dilution provisions dealing with, among otherthings, share consolidations, share splits, capital distributions, rights issues and bonus issues."
I don't need to say more.
You asked to be "corrected and educated", so I simply corrected your understanding of how conversions work, using the extract from HUR CB.
"Given the paucity of information I wonder how you managed to derive the figures you have broadcast. Do tell."
I assumed 20% discount to current share price to come to the figure. I'm sure you're able to derive the figures, estimates and assumptions from that using my stated figures.
Shift, thank you for your blah blah blah. You seem to have an agenda here. Probably sitting in a call centre ,boiler house. Working for the Bond holders to promote there agenda like the company board at present. Will wait and see as to how it plays out. Considering you are not invested in this company ,unlike me. Why the hell any shareholder should listen to your blah blah blah. Take a hike. My view is you are a being paid to put the drivel on the board or even worse you think that you are an arm chair expert, no money to make an investment.
Slift,
I appreciate the 2C resources, but they do not easily become 2P reserves. The PRMS definition of contingent resources is as follows:
"Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable owing to one or more contingencies."
The company has put forward their highest ranked option, the proposed P8 sidetrack. That well has 2C resources of 3.2 mmSTB, and the stakeholders could not be convinced to give it a go. This does not speak well for the remaining 2C resources on Lancaster. For Lincoln and Warwick Crest, all we know is that the exploration wells drilled so far tested at significantly lower rates and/or productivity indexes than the Lancaster wells. This does not inspire confidence in further investment on these fields.
My conclusion remains that it is very understandable how the risk-adjusted best option can be to do nothing.