Member Info for Hounddog10

Yes I did a bit of buying today. I am increasingly of the view that the dilution issue has become overblown. The convertible holders are faced with quite a number of practical difficulties in realising their position. It is interesting that GEF has not yet exercised - from GKO's latest investor presentation it is clear its investment has now stopped compounding (although that was not absolutely clear from the GEC circular which also dealt with GEF amended terms). GEF was on prevailing price (not sure if that got changed) and GEC is more sensibly on 5 day volume weighted average which is c65-70p now. Another problem for the converters is I think that GKO does not have enough authorised share capital for super dilution. It has only 300m authorised share capital leaving c150m for dilution. If the convertibles needed more the shareholders would have to vote through an increase which would slow the process of getting the share and selling them.

But I can't imagine they will want to end up with 30% of GKO particularly unless they have a buyer lined up (unlikely I would have thought). They have compounded up very nicely at 16%/18% so would guess taking a large chunk of that in cash (perhaps somehow deferred if GKO cannot pay) makes commercial sense for them.

Yes seems a bit like that. But I think it was more that the RNS was forced on them by the price movement not the other way round. The RNS doesn't really say much and I think you would normally want in these circumstances to put out an RNS to say what you have done to solve the problem. I guess people were relieved radio silence had been broken. It will be a roller coaster until that does happen.

Wonder what "at a subsidiary level" means. Doesn't seem to imply cash - perhaps a conversion to a regular bond?

I am sure that any restructuring will be announced right at the last minute and that matters will be progressing in a very non-linear fashion very alien to the Western way of business. I hope they are willing to pay for some decent advice. Although the two founders have Warwick MBAs they are really engineers by background (software originally I seem to remember) and the finance function in Indian companies does not tend to have a high status. I seem to remember they used Rothschild Mumbai for certain advice on the original float and of course there is Arden.

The next results will be the interim results for the six months ended 30 June 2015 and will be published in September (they have said this somewhere publicly). They changed their year end and reporting currency on the last set of accounts to 31 December (from 31 March) and USD (from Euro). It all makes it all rather complicated looking at their results (I constantly had to remind myself that the last accounts are only for 9 months not a year). When the interim results come out it will have to be borne in mind that this is a seasonal business and I think the results will now be skewed to the second half of the reporting year as the monsoon season in India when the wind blows and the rain pours is July to September. They have said they are anticipating getting a good part of their current build projects done before the monsoon but it will not be reflected in the first half results. I hope when they release the interims they pay attention to explaining any good operational news post 30 June 2014.

Yes you might expect with the $550m ring fenced bond cash to be restricted but there are requirements under IFRS accounting to disclose and I don't see any mention in the accounts.

I don't see any right for GKO to pay out the convertible instruments in cash so it will be what the convertible holders want to do. But the more I think about it the less likely it seems they are going to mess around maxing out their rights to equity when they can take some cash off the table. GEF has a recent investment in another Indian green energy company so it may be happy to take 29.99% and hold. GKO says at end 2014 had $147m of net cash resources and $176m of undrawn facilities with $136m of contracted for but not incurred expenditure. So as op cash flow positive should have enough money to cut a deal with the quasi equity holders if they can be persuaded.

GIC's conversion rights appear to have the following limitations (i) GKO share price determining dilution; (ii) no more than 49% of Greenko Mauritius (GM); (iii) no more than 29.99% of GKO; and (iv) only two stabs at conversion. Although the GIC March 2013 Circular talks of "an" adjustment my reading is that an adjustment takes place on each of the (up to) two times exchange rights are exercised. Assuming GEF goes first (for reasons set out in previous post) then GKO shares will have gone up by 76m shares to 228m. I think compounded GIC has c£145m of investment at 1 July 2015 which at 45p converts into c322m of shares (so no this is not a restriction). However, it appears that GIC will be limited by the 29.99% so it gets 114m of shares on a first exchange increasing GKO shares to 342m and 171m on a second conversion (assuming first tranche sold) taking GKO shares to 513m. So non GEC and GIC shareholders will still own c30% of the company. This would seem to me to be the worst case scenario. For example - and I haven't worked it out yet - as have been trying to see GM's current capital structure (can't seem to locate the accounts in the Mauritius Companies House) it may be that the 49% in GM is a limitation before the 29.99% in GKO. This would be particularly the case if GIC converts before GEF (it appears GEF has about 17% of GM so leaving only 33% of GM that GIC can initially convert into before exchanging to GKO shares). However, there is a clause on page 11 of the GIC March 2013 Circular which says that "within a period of twelve months" (unhelpfully does not say from when but I would guess from the end of the conversion period ie from 1 July 2017 to 1 July 2018) GIC can require any balance of GM shares to be exchanged (but it cannot breach 29.99%) or paid out in cash. So this is I guess really a third go and is perhaps where the notion of unlimited dilution has arisen. However, this third right is a long time in the future. Personally I think it is a bit theoretical that GIC (or indeed GEF) could easily sell 29.99% at a decent price and then come back for more. Although obviously normally big sales would depress the share price accentuating dilution my guess would be that GKO's share price is so bombed out by the dilution issue that the moment it starts to clear with conversions it will start to rise, possibly rapidly, therefore working against any plan to come back for another quick 29.99%. Sorry to debut on the Board with long notes but aside from the contributors on this Board I haven't seen anyone try to really get to grips with what the extent of the dilution might be and why. The IC articles I have read are very general. Don't have access to analyst reports (which may be a good thing) so not sure what their logic is. I hope I have done the math right and there are clearly a number of scenarios that could be run but the three times 29.99% seems to be the worst case.

I've been following this thread and done quite a bit of reading of the various docs which are not easy to follow. So a few thoughts starting with GEF. Although GEF's original conversion period was July 2014 - 2017 this got amended when GIC came in "to extend those original commercial terms and the exercise window for the GEF put option by one year" (page 8 of the GIC March 2013 Circular). I take from this that an extra year of compounding at 16% to 30 June 2015 was permitted. I assume this is the commercial scenario as GEF agreed to keep its investment going for another year and I doubt GKO would have agreed to take compounding to 30 June 2017, although this is what was granted to GIC. Quite why GKO cannot simply state what changed is beyond me. So I would assume as Parkside points out in Friday's very lucid post on conversion that from 1 July 2015 GEF will be immediately motivated to do something as the investment no longer gives a return and one would hope the share price is about as low as it can be. As with Parkside I reckon the compounded value of the GEF investment is c$106m at an exchange rate of 1.6 and a share price of 45p I reckon this entitles them to c147m of shares. However, it seems clear to me (page 8 of the GEF October 2009 Circular) that they can only go to 29.99% of the enlarged share capital of GKO with the remaining amount paid in cash - so c76m of shares (GKO has 152m of shares) and c$51m of cash. Looking at GKO's last balance sheet they should not have a problem paying this. I had not initially noticed but as Parkside points out GEF can have multiple stabs at conversion but would need to sell shares to do so. I should imagine to sell a stake of 29.99% or even 20% or 10% would not be particularly easy (may have to worry about concert party rules under Blue Book as well) and any buyer, unless they were after building a stake for control, would presumably look for a discount. So it is difficult to see why GEF would not take the easy route and take the cash. The share price would seem to fully price in dilution and as dilution unwinds and (barring mishaps) the interim results come through with completed projects the share price should rise reducing the shares GEF would receive. In fact by my calculations if the share price goes to 87p they will only get 29.99% shares and no cash. On its website GEF seems to have $1bn under management and its GKO investment is from just one of their funds - Fund III (and there may have been subsequent ones - although earlier ones may have been liquidated). So the assumption must be that the GKO investment is highly material to Fund III and they have done very nicely at 16% compounded from 2009 (and I would guess these gains have already been booked in past accounts and performance stats). So my guess would be that GEF takes the simple route and at 45p gets a nice even balance of shares (at a bargain price) and cash as soon as possible after 1 July 2015.