The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen 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.
For less than 9 months of your capital being tied up you get,
8.125% interest,
more shares on conversion,
guarantees on div and dilution,
capital gains on share price increase
and some "green leaf" as mdunsire describes it.
The company gets zero incremental cash and some fees.
Try and tell me the old BOD and executive are not criminally corrupt.
You are in fine form tonight :-) Actually I think the 2022 bonds were at a coupon of 8.125%. I think the convertibles were at a very tasty 8.25%.
If the old board and the company survive this current crisis it will be good to see the conversion happen. These bonds have been an open sore, we will save 4 years interest, and the conversion is probably already priced in to the shares to some extent.
I like you workingstiff, I agree with you conversion must happen. What’s done is done. Just find it very unpalatable to be a fanboy
Workingstiff & UpDownFlat,
Talk of redeeming the Convertible Bonds early, is all very well, but please explain how this might happen?
As far as I can see there is no clause or option in the CB contract whereby POG can enforce conversion early. The bondholders can continue to earn 8.25% for the next 4 years and then elect to convert their bonds to shares, probably at a much higher sp than today. So why in hell would they wish to convert now?
The post from Mdunside re: his chat with the Russia Prosperity Fund makes the same bland suggestion, and talks of some "green leaf". The interest still due on this bond amounts to $41.25m, so that green leaf will need to be very enticing indeed!
"3) About Article 19 of the AGM - the reasons for this were yes to redeem the bond early i.e. to be able to offer the convertible bondholders to convert into equity as 8% is too hefty a burden interest wise and they could offer some green leaf to bond holders to convert earlier in a deeply "in the money"
Kenj - that is a very good question.
If the contact from Prosperity is right I can only think that Pav has got them to agree to convert early. Perhaps they fear some legal challenge, as the bonds were issued without any reference to shareholders. It would also provide Pav with an extra 800m (or however many it is) friendly votes. Useful to him, given the current strength of his enemies.
So I take it this is what UGC are against as if the convertibles are called before maturity UGC's hold on POG decreases dramatically to bellow half of what it is today, giving less influence on future decision making.....
But who holds the bonds?
Workingstiff,
I do not believe that any legal challenge is likely regarding the issue or terms of the CB's. Fear though, might make them convert early - the fear of the sp falling significantly.
Consequently, I would be very worried if the CB holders asked to convert before 2024.
Davidthe Grim,
The bonds cannot be called in early by POG, only at the election of the bondholders.
Secondly, we do not know who holds the bonds. Perhaps UGC are major bondholders.
Kenj
Legal - maybe / maybe not.
Fear - or prudence. 2024 is a long way out. Who knows where the share price / gold price will be then. Nothing wrong with taking a profit. A lot of successful investors leave something on the table.
Conversion - I am not clear what you are saying about this. Are you saying you don't think it will happen early?
I though UCG owned about 8% of the convertable bonds ? Isnt that thier other voting instruments on the RNS
"Are you saying you don't think it will happen early?"
Workingstiff, that is exactly what I am saying.
The bondholders are due to earn 8.25% interest for the next four years, a total of $41.25m.
Interest rates anywhere near 8% are a thing of the past, unless the borrower is high risk. The International Banks are currently offering bonds at negative interest rates. Collecting 8.25% PA interest for lending to a successful FTSE 250 gold miner is a really good deal, and unlikely to be matched.
Ask yourself this: if you were a bondholder guaranteed 8.25% interest for the next 4 years, and then the option to convert into shares costing around 13p, would you convert early?
Then consider that this idea has supposedly come from the Russia Prosperity Fund, who explained all of this to a poster who has popped out of nowhere. I do not know whether Mdunside is genuine or a fake, but I retain a level of scepticism and caution with any poster making unsupported claims.
Kenj, I appreciate what you are saying, I will add something else to the mix, as I don't know the answer. What if the company decides to pay dividends. My understanding is that convertibles would not be entitled to the dividends as they are not shares.
So could a possible incentive for them to convert, be to pay some of the interest upfront, then pay a dividend. Now I know thats not like interest, but it has tax advantages, AND, they would be converting at a low rate ( i,e 13p or so ) the dividend yield for them would be higher. Just a thought, Especially as it has been mooted that they are considering a dividend and the company, should, be in a much healthier position soon.
Rusty,
kenj can confirm this but when I read the document it says they are entitled to dividends. One of the new additional items they got.
UpDownFlat,
I don't know which RNS you are referring to. I know little about Financial Instruments, but what I do know is that any voting rights attributed to Convertible Bonds is purely imaginary until the bonds have been converted.
Kenj, yes maybe they are not voting rights at the moment, but I thought they kept their stake just under 29% - 22% in equity and the rest in convertable. Ravishenko also had this but these were the old convertables no the super-duper new ones.
In any one of the RNS items when they cross a threashold they break it down into two columns Equity and other financial instruments and give a percentage of voting rights of each.
effectively I think they own 22% of the equity and 22% of the bonds(Which are 1/3) of the equity
UpDownFlat,
This is from p38 of the CB document.
"Holders of the Bonds will not be holders of the Ordinary Shares. Holders of the Bonds will not have any voting rights, any right to receive dividends or other distributions or any other rights with respect to the Ordinary Shares until such time, if any, as Conversion Rights are exercised and (to the extent applicable) such holder becomes registered as the holder of the Ordinary Shares."
So it appears the bondholders would not get any dividends.
Kenj
"... that is exactly what I am saying."
Do you have a view as to what resolution 19 was for?
Have a look at page 71. From my reading the exchange price of 0.135 is adjusted down by the value of the dividend
If and whenever the Issuer shall declare, announce, make or pay any Dividend to Shareholders, the Exchange Price shall be adjusted by multiplying the Exchange Price in force immediately prior to the Effective Date by the following fraction:A-B/A
I would value another opinion, on the surface, it seems that although they don’t directly get a dividend the get it knocked off the conversion price.
i.e. more shares
UpDownFlat,
You are right any dividend paid affects the conversion price for the bondholders. By how much, I have no idea, the formula shown is double dutch to me.
So in summary, the bondholders do not receive any dividends, but the conversion price will no doubt be reduced if a divi is paid.
Workingstiff,
As I said in an earlier post, it is not that unusual for Company's to insert such clauses. It is to cover for unforeseen circumstances.
Yes, so basically ever time POG pays a dividend it’s like a free rights issue for the convertible bondholders. That’s why crooked Roderick and Prosperity was so keen to encourage it.