Member Info for Megla

Antigua, agree with the sentiment of your post, this is the second painful refinancing that TD has put the company through, so yes there should be a change at top once completed.

However, I would still challenge to why this is a disaster for shareholders. The company was in dire straights before this deal, the creditors could have quite easily pulled the plug and equity would have been worthless. The deal ensures equity survives and will arguably do well in a post COVID world. Yes if you’ve bought for a quid and don’t have the cash to avoid the dilution then you’re never going to get your money back, but if you have the funds to ensure your holding doesn’t get diluted then I don’t get the disaster comment.

AK57, you haven’t got a clue what you’re talking about. Filtered.

Phoenixy, Premier’s assets aren’t the ones on the balance sheet, they’re in the ground.

Tullow have a negative balance sheet but their equity still holds value. Strip out Premier’s intangibles and goodwill and they also have a negative balance sheet. Don’t get me wrong, buying at a discount to book value can work out well, but it really is irrelevant in terms of valuing the company.

I disagree SK, I think they’ll be enough institutional guys willing to risk other people’s money to make the equity raise a success. Not sure I’ll participate, I only have a small holding anyway, but would very much add in size once this is completed. Particularly with a market cap lower than the TERP.

You’re confusing yourself AK57

The underwriters can’t move the share price, they’re the ones that agree to purchase them if no one else does.

AK57, and who is going to underwrite it? The senior creditors certainly won’t if it isn’t a sizeable discount to the current price? As I say, 100% chance of failure in that scenario.

AK57, with respect, there’s absolutely zero chance of the rights issue being at a premium to the current price. That would result in a 100% chance of failure.

But specifically SK, why is this refinancing/equity raise a disaster for the company? Production will be up, debt down, maturities extended and no covenant concerns whilst oil prices remain low. I’m struggling to see the disaster if it all goes through as intended.

Antigua, why is it a disaster for the company? What other choices did they have? The company has carried too much debt for a long-time, the refinancing and equity raise goes a long way to resolving those issues.

Shareholders will likely get a chance to ensure their equity ownership remains the same, so I’m not sure where the disaster is? Short term pain, but this puts the company on a much stronger footing going forward.

phoenixy, no one is going to pay a premium for the shares. Think about it, Premier announce a rights issue at 34p but the current share price is 22p, no one in their right mind is going to pay 34p when they can buy in the open market at 22p. Expect the rights issue price to be heavily discounted, probably 10p-15p.

Also, the net assets on the balance sheet have nothing to do with the share price.

Happy, if you don’t see value in the medium term then what’s the point in even following what’s happening with the refinancing/equity raise?

Agree Sirius50, that’s why it’s a theoretical ex rights price and the point of the question. If an investor thinks the market cap will be lower than TERP then why participate in the equity raise at all?

On the other side of the coin, investors might believe the market cap will be higher than TERP due to the increased FCF generation and improved balance sheet so would of course what to ensure their equity ownership isn’t diluted.

Not sure I get your point on EPS, if holders retain their percentage stake in the company by taking up their rights, then yes EPS is reduced, but the earnings attributable to their equity ownership are still the same, or in this case higher due to the addition of the tax free barrels.

Not sure how that analogy is relevant funky? Are you suggesting the company will be worth less than the TERP?

Is the market going to value Premier more or less than the theoretical ex rights price after the completion of the equity raise?

Current market cap is £200m, add on the £400m of new equity and that company should be valued at roughly £600m. Obviously the refinancing/equity raise massively improves the balance sheet and the additional tax free barrels of production will improve FCF, but the £600m market cap is definitely steep in the current climate for energy stocks.

Thoughts?

Not sure what the market cap has to be before it becomes unviable, but probably not too far away.

You’re just not being positive enough SK

Thanks for your input, it was very insightful.

Lemarc, why would anyone buy shares at 35p when you can buy in the open market at 26p? That doesn’t make any sense whatsoever.

Issue price will be 20p or below, and will be the same for new equity and D4E.

Big question is, what’s the company worth with the new assets and much improved balance sheet?

Goodmann, they need raise $530m, or call it £400m. Part of that is underwritten by the senior creditors, but if they convert $200m of debt into equity then your holding gets massively diluted.