The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
You’ve explained it far better than I have! I know there are quite a few complications and clauses involved (some of which you’ve mentioned), plus different rules for pre 2017 as well. Certainly not the case though that the shell is worth £40 million or so because of the retained losses, as I’ve seen some trying to claim. To make any real use of the potential tax relief before it expires, you’d imagine they’d have to reverse in a producing asset, rather than an appraisal/exploration licence or similar.
Exactly the point I was making - plus there is a distinction between capital losses and those relating to operations, and how they can be written off (a lot of the retained losses relate to writedowns of asset value, plus occurred more than three years ago). Makes a good story, but anyone claiming that all of the retained losses can be offset against any future profits is delusional!
That figure relates to retained losses over the life of the company - I think many are misunderstanding how losses can be utilised against future tax on profits. For a start, if I remember correctly, retained losses can only go back three years for tax relief purposes anyway. There is also the question of how transferable they are if the business changes completely and the business that they relate to is no longer in operation (although you might expect some relief on the actual assets where money was spent, depending on the jurisdiction under which they fall). Far more complicated than just saying that the new owners will have over £40 million in tax relief - which they won’t!
Most of the debt is in the form of bonds - these aren’t due until 2022, so as long as the coupon continues to be paid, there is no way that a default event could happen until they become due for redemption. If the credit facility providers weren’t inside then they wouldn’t consider to extend a large credit facility that is drawable. A lot will come down to diamond prices over the next couple of years - as to whether or not this company recovers and is able to ultimately refinance the debt
Surely if holders vote down the conversion and leave C4 stuck with the debt and no control, then they would call it in and out the company into administration? I suspect that money raised in the placing would probably be enough for them to recoup what they paid Shard for the debt (given it was about to become pretty much worthless anyway). I would imagine C4 have made sure they’re in a position whereby they can’t lose. I also suspect some placees have been buying open market as well to ensure they control enough shares to vote the placing though, along with other resolutions
Doubt they could find a buyer and would also expect further writedown on the value of that anyway - possible they might try to give it to PVF as part of an out of court settlement of the dispute. Strange that it was completely omitted from the last RNS, as with Garden Hill, Rule 15 doesn’t apply anyway (it is largely what the business has been based upon since around 2010!) - wouldn’t surprise me though if this company wasn’t giving the full picture! I’m also not convinced that the retained losses can just be transferred to new assets - given that they largely relate to the existing assets (mostly Newfoundland/Garden Hill) and include a large amount of asset value writedowns rather than actual business losses
Will be interesting to see how the ongoing court case (being sued by PVF Energy in Newfoundland) plays out as well - unless there is something that the company isn’t revealing (would be illegal) then it still has Garden Hill via 100% of Enegi subsidiary, which made up most of the carrying value on the balance sheet! No way of knowing the exact figure but C4 will have bought the loan at pennies on the pound!
Quite likely that it will breach covenants in a December and June (as mentioned in the last update), but I would also expect the providers of the debt facility (covenants related to that and not the loan note holders?) to be accommodating - otherwise they’d already have pulled access to further funding from the remaining undrawn facility I would expect?
They can alter the nominal value by ordinary resolution at a GM I believe - unless articles of association prohibit that. Still think consolidation makes sense if they’re looking or a fresh start. Although something doesn’t feel quite right and sure we aren’t hearing the full story
Will have to be a reorganisation - guessing subdivision as otherwise they’d consolidate and issue at a higher price (say 100:1, with shares issued at 5p and nominal value remains the same). Just surprised it doesn’t mention exactly how that will work - given it mentions the need for various things having to be passed at the GM.
There is no mention in the RNS that it takes into account the money owed to NUOG by MFDEVCO - only that it basically cancels the debts owed to RMRI and Minty by NUOG. So in theory NUOG should now demand the repayment of the money owed to it by MFDEVCO - which is recorded in the accounts as an accrual (£1.165 million as at June 30 2018), less any VAT that would become due when demand for payment is made. Could effectively put MFDEVCO out of business I would assume as it couldn’t meet that payment demand? All depends on the exact terms of course
A few things here seem strange - not least of all how the company plans to issue shares at below par value? There is no mention of any change to that so it can’t issue shares at 0.05p anyway!
There is also AIM Rule 15 - it can’t be a cash shell as it still has Garden Hill! If anything has changed with regards to that asset (which accounted for most of the carrying value in the balance sheet) the company would legally have had to inform the market. All very strange and there seem to be several breaches of the rules, or at the very least inaccuracies and not providing all of the info required!
If you’re looking to short in a big way - the ideal scenario is to do it on a company where there is an obvious big seller (Rowe) and fairly low liquidity as it always causes the share price to overreact. Operationally I don’t see any major problems? Of course there is risk - hence trading at the current level and such a big discount to NAV
Not ideal but often see this refinanced - especially with the life of mine and reserves/resources. Look at the oil cos like Premier which were hammered during the period of low oil prices (high debt, concerns over covenants etc), and look at it now oil has recovered to some degree. A lot of resources cos have to spend large amounts to reach production so carrying large amounts of debt isn’t uncommon. The gap between NAV and market cap is also very large. Lenders also seem to be onside and supportive - credit facility wouldn’t be available if they weren’t. All comes down to the diamond market showing some sort of longer term recovery though.
If you’re in for a recovery play then that is going to happen over time - personally just bought and hold, not trading it, as see potential value from these levels at just 20% of NAV (including recent asset writedown)
Often the way after a big rise in a single day and it tends to be very volatile anyway - can often see intra-day swings of 8-10% from the high to low. Quite a few have probably traded the rise as well. All now down to whether it can keep some positive momentum.