Member Info for AA2020

You can raise equity at a discount to nominal par value. You may have to go through a process first including to reduce par value, but it can be done

Ah - very interesting. Didn’t realise the market closed at 12:30 on NYE!

I’m actually pretty surprised the share price didn’t jump higher on this RNS. The market must be in holiday mode! The investment case and outcome has been binary for some time - either it’s worthless and will be placed in administration with assets handed to banks OR it is worth significantly higher than current market cap even with the impending equity raise and dilution. Today’s news makes the former very unlikely and to me is somewhat of a positive signal of current Board/SF good faith and intentions.

This is good news. The banks clearly are willing to negotiate (despite the protestations to the contrary made by the previous Board!) and it appears current Board will be able to improve some of the terms, including in relation to the quantum and timing of the inevitable equity raise. This significantly reduces the risk of some of the theoretical worst case scenarios discussed here previously.

4C - re: the reference to Jan 4th and warrants, I read this as simply that GMS of course was previously obliged to issue warrants by end of this year - ie today. Jan 4th is the first UK business day after today therefore without the waiver from the banks they would have technically been in default on Jan 4th.

I thought the issuance of the warrants would have translated correspondingly into a reduction in debt, essentially being a partial debt for equity swap? It wouldn’t have just been an issuance of warrants for nothing - ie thereby being a fee of sorts to the banks.

Also worth bearing in mind, based on customary loan documentation language, that technically come 1st Jan (assuming no deal is reached before then) GMS would “only” be considered to be in default. Banks would formally notify GMS of this and then there would be a so-called “cure period” typically at least 30 days for GMS to cure said default. Failing that then the banks can then call in the loans. Now whether the existing banks would go this far as you say is a whole different question.

Assuming the banks do eventually during this process call in the debt, GMS would have options. They could issue preference shares and/or issue a subordinated shareholder loan to SF+friends to fund the shortfall. Or they could simply refinance with a new set of banks whom SF+friends/ManCap are close to. Or a combination of these three funding options. Point being there are several different funding permutations available - most of which pivot in some way around SF+friends stumping up additional capital on attractive terms whilst maintaining control of GMS. But if I were them I’d be pushing the existing lenders to the limit so see how far they can go before needing to engage these alternative funding channels.

Nerve racking and suspenseful indeed for us “minority shareholders” but I do think GMS will come out of this intact in the end, albeit in fairness we will probably take a hit dilution-wise in some form.

What I find interesting is that the company even issued this RNS. They didn’t have to issue this. Issuing this RNS, which paints a positive narrative of the company, however small and incremental, isn’t normally associated with a Board who is attempting to drive the company into administration (the much talked about potential worse case scenario/outcome). It also helps potentially support any business plan assumptions as part of any current discussions with lenders.

I think any offer, or asset sale (given market cap), would require at least 75% shareholder approval. A squeeze out 90%. So on that basis alone I would think new Board/SF/Man Cap would need to play fair and reasonable.

Indeed - all very boring at the moment. Tick tock, tick tock....

oh wow, now that is very interesting re: Zakher Marine. Given ADNOC's interest in Zakher, it also provides further evidence that were SF+friends to go down the administration route with GMS in order to pick up the vessels on the cheap, there would very much be a fair bit of competition for the assets and hence a very risky (and thus unlikely) strategy/scenario.

Well, that was all slightly anti-climatic. Was partly thinking there might be an RNS about a bid at 7am. But then again, how would that be a good use of capital at this point - i.e. spending c. $50-60m to acquire the c. 50% they do not already control (i.e. to put into the pockets of the existing non-SF+friends shareholders) which would leave the debt overhang remaining in tact. Actually, doing so (succeeding with a full offer) would trigger a change of control with the banks and so they would then need to refinance the whole debt quantum in any case, including the equity injection component.

Surely it would be better from the point of view of SF+friends just to spend $75m in new capital (to pay banks). For me the question is how they go about that. Can it be done as a private placing of new shares solely to SF/Mazroui/Horizon? In this case SF clearly goes above 30% which in ordinary circumstances would require making a full offer. To waive such a requirement would I think either require the consent of the Panel (unlikely to be granted) or existing shareholders (but as an ordinary (50% approval) or special (75% approval) resolution?? If the former, then no problem, if the latter then it gets complicated). Alternatively, if they go down the route of a traditional rights issue it would probably have to be underwritten. Do they get a local bank like EFG to underwrite (with whom the new team have very close ties)? Could it be underwritten by SF/Marzroui/Horizon? If all shareholders don't subscribe pro-rata then SF/Mazouri/Horizon then need to pick up the difference which puts SF over 30% (unless it's picked up by Mazouri/Horizon) hence reverting back to above issue about waiving requirements for a full offer if breaching 30% level.

As a former M&A banker myself, am starting to wish I paid more attention to my Equity Capital Markets colleagues on some of these finer points...

@4C - thanks, indeed still very much here and waiting to see how this whole situation pans out

It’s the final countdown! Things are bound to become clearer by end of Monday. Am still thinking either a new offer or details of fundraising with new capital from SF and friends.

There are a number of conditions precedent for this deal to complete, not least of which is shareholder approval. There is a not insignificant chance that PMO do not obtain the requisite % vote. They were driven to this deal with Chrysaor in large part because existing institutional investors did not want to stump up new equity. The same investors might be thinking about things a bit differently now. Odds are against it, but just saying. Even if it goes ahead, the shares are rather attractive at this level based on any sensible valuation of the combined group.

@4C - Indeed they would need shareholder approval, but I imagine if that is the scenario, they would easily get approval. If I recall correctly, they would need 75% shareholder support but faced with the alternative of administration, they would easily get the shareholder support. It might all be bumping up against the 31 DEC 2020 "deadline" but with a path forward clearly set out, it would just be a formality for the banks to extend by a month or two to get it all closed and funded.

The result of today's vote was of course signaled two weeks ago so nothing really new in today's RNS. My overwhelming hunch is still that SF and friends are forcing the company into raising the $75m from themselves and/or some other sort of similar transaction e.g. reverse merger. That wouldn't be ideal for other existing shareholders as it would be at a dilutive valuation, but so would raising $75m through the traditional rights issue process. All still better than the administration scenario and we would still have exposure (albeit diluted) to the recovery story. Of course, one can mitigate that dilution by snapping up an implied pro-rata amount of shares once SF's intentions are clear.

@4C - in terms of why the 2 SF reps resigned from the Board (with one requisitioning within an hour to get back on), it's difficult to assess. But one has to assume it's part of a rational tactic and strategy. I suspect it's either to cause further governance disturbance (as GMS has itself postulated) in order to make it more difficult for GMS to raise fresh capital (...except of course fresh capital from SF). Or it might be for some procedural purpose to make it easier to raise fresh capital from SF (e.g. by possibly reducing some of the conflicts of interest, making it relatively more "arms-length", etc.). Either way, with SF indicating they will not support the issuance of the warrants, I think what is going to have to happen over the next few weeks is SF and GMS are going to have to get together around the same table and finally have some grown-up, sensible negotiations on the path forward. I think MAN Capital and SF are clearly in the driving seat now, although GMS isn't completely powerless. Everything I've read and come across about MAN Capital and the Mansours suggest they have a somewhat different style than your classic, ruthless, short-termist, a**hole private equity players, so I suppose that is positive, but then again interviews/public info can be deceiving.

More broadly, I do think SF have value to add to GMS. Kudos to the GMS management for turning around the business and cutting costs, but more can still be done and it was achieved by GMS partly only by the prodding of SF since early 2019. The OSV market is fragmented and a tie up between SF and GMS would make a lot of industrial and financial sense and deliver some juicy synergies. The market needs consolidating, which would in turn (and in time) bolster day rates. Better yet would be a three way tie up between GMS / SF / Zakher Marine.

Also, thanks for the .kvk.nl link. Agree, I wouldn't pay any money for that, especially as I suspect it would only have various subsidiary level documents (less useful) rather than the more useful group consolidated accounts which, as the company is registered in BVI, are publically unavailable.

Very interesting 4Corners. I didn’t realise MAN Capital were shareholders in SF. All I was previously able to find was vague wording that SF shareholders comprised a range of GCC investors including a SWF, regional family offices and regional HNWIs. So MAN falls in the regional family office category. I wonder though what their precise shareholding level is and also which SWF is invested. Public info dried up after the repayment of the senior secured bond which was traded on the Irish exchange in 2018. The prospectus for that bond (issued in 2013) is freely available as are numerous bond investor presentations and SF financial accounts which are all very interesting although a bit out of date now (last available I could find was 2016). I didn’t for instance previously know MOS was set up by Och-Ziff and Mike Mullen.

Re: the scenario of a forced $75m fundraising from SF and friends at 1p....on further thought this would require at least 75% shareholder approval so is pretty unlikely to happen. Even if they have full Board control. Other shareholders would have a clear case that the Board were not fulfilling their fiduciary duties to all shareholders. But for sake of argument if that was the path this went down, Mazroui and Horizon would benefit if they co-fund the newco alongside SF from which the $75m was sourced. But then that likely proves “acting in concert” so should fall over. So several mechanisms thankfully appear to prevent this theoretical 1p fundraising scenario.

A scenario which worries me is that SF can now essentially say to GMS: you are obligated to raise $75m, you do so from us and we set the terms. Otherwise it’s administration. So SF play hard ball and force GMS to raise $75m from them at 1 cent a share, thereby issuing 7.5bn new shares. SF then owns 97% of the company and then forces a squeeze out and de-listing. I don’t see mechanically what is to stop them from that.

Good point 4Corners. Definitely more than just those three end games. The merger scenario is interesting. I wonder if SF would look to force a reverse merger similar to the current situation with Premier Oil and Chrysaor. It solves the capital structure issue and no doubt would bring material synergies and greater tendering / business development heft. It could conceivably be of benefit to all shareholders in the medium term. Although this would depend on SF wanting to retain the GMS listing for the combined entity.

Either way I think (or rather hope) it’s unlikely that the SF game plan is to intentionally push GMS into administration in order to buy the assets. It would be pretty risky with no guarantee of success and it’s not obvious how Horizon or Mazroui would benefit.