Member Info for PaulCurtis

Three options

An equity raise. Obviously this is what the shorters want/expect.

A sale of the whole company. Obviously bad news for the shorters but limited downside - they would g able to buy back at close to the bid price.

A partial sale which is large enough to allow PFC to avoid an equity raise. The obvious assets to sell appear too small to allow this but they could flog the UK business although this is not ideal re diversification. No analyst has mentioned this but could they not sell say 29% of the entire company? This would be a nightmare for the shorters since it would expose them to a full on short squeeze with no safety net.

Imo today’s shorts (for yesterday) will be especially important. There are 7 shorters, all with different perspectives re risk reward and difference sources of market research (or insider trading!).

If there is a solid grounding to the recent share price bounce, then at least one of these players must have got wind of it. And must surely have tried to exit yesterday. As some here posted, first one out the door is likely to spark a stampede. All the shorters must realise that if they are to close, if the chances of that equity raise are fading, then they need to be the first one to buy back. Closing 1% means buying 5m shares, yesterday’s volume c. 10m.

And please don’t bother wasting space with the usual Saint Paul/shorter nonsense, debate what I’ve actually posted which is not negative for equity.

‘ Oh dear short paul.....unlimited losses coming your way’

LOL! You can check out my my posting history here and elsewhere under GHH. Or X under @paulcurtis123

There is no record of me ever being short of anything.

Why do I bother posting here? I suppose it’s interesting to see how the various camps split between those who try to rationalise/understand the risks and those who are ramping or too dumb to debate.

It is stating the obvious but it’s a very tough market to raise money in. Look at all the VC funds and their crazy discounts to NAV resulting from market concerns that they can’t raise the money for follow up fund raisings for their investments.

PFC dropping sub 20p pre Xmas therefore looked very ominous but this current price spike appears much more positive as long as it’s not just BB muppets mindlessly chasing the price up. I’ve said before that lots of people are involved in this restructuring and there will be leaks. Hopefully this price spike is inside smart money buying and ideally shorters exiting.

Obviously shorters exiting would be great news and imo would increase the odds of a takeover….. if the shorters increase tonight/tomorrow then it’s muppets buying today!

‘ I think an interesting issue here is of the 8b how much is profit - is 10% reasonable? Not sure it appears like that in the accounts. Anyone got a handle on it? That's what is probably going to give us the edge for RCF extension/increase and a new bond etc. I guess the margin on the new contract is one thing, but profit on that margin is another.’

This 8bn is at risk of being severely reduced unless PFC can secure the Guarantees. This is obvious before anyone here accuses me of being unduly bearish.

This is an unusual situation as PFC will be transformed by releasing the Guarantees and extending the RCF and possibly the bonds as well. How much cash do they need to raise to achieve this virtuous circle?

Imo they will want to be able to say to BHs and especially RCF holders ‘Look guys, we have a chance to raise £Xm cash but only if you give us something in return’. So if they can negotiate better terms re extensions, security (allowing PFC to sell something and prioritise the RCFs ) and interest rates, then this will partly compensate equity for the dilution.

eg is current equity better off being diluted by say 50% but New Petrofac, now financially stable, will be rated much higher by the market.

PFC will not want a sticking plaster solution ie the bare minimum. They will want this to re boot PFC so that future clients have no worries about future cash flow problems. This will allow PFC to achieve better margins

Slift

Everything hinges on how much cash they need to raise to free up the Guarantees and renegotiate/extend the terms of the RFC.

I don’t know how much this amounts to and neither do any of you so I’m afraid you can’t blanket dismiss the risk of a D4E. All the other recent broker notes that I’ve seen have said that this risk has diminished since the last trading update.

On the flip side, Kepler are not dismissing the possibility of a takeover. This would instantly solve all PFC’s cash flow problems so you would have thought the price would be at least 50p, allowing for PFC’s ‘distressed’ negotiating position.

‘So are you going to state you are short in equities and long in bonds?’

I have no short position and have NEVER shorted anything. IMO shorting is a mugs game unless you are very good at it.

I have a friend who shorts, most of his trades have been very success but he lost over £2m on just two trades which more than wiped out all his profits.

So Cheapboy, you need to visit Specsavers!

I assume someone must have posted this last week? I’ve not seen it before, got link from Citywire this morning re David Kempton’s seven stock picks for 2024

A real ‘do-or-die’ holding, deriving most of its revenue from engineering and construction, it provides fixed-price engineering, procurement and construction project execution services and reimbursable engineering, procurement and construction management to the onshore and offshore energy industry. Having worked in the sector I understand well that the massive recent order intake is game-changing for the company, on a ridiculous forecast 2025 P/E of 2, PEG 0.1 and yielding 8%.

But beware, although up 40% in the last month, PFC has a big ‘short’ following and offshore contracting will always be a cyclical industry. I lived with that personally in Aberdeen, Saudi Arabia and Singapore for 12 years of my early career and am happy to live with it again here. This is a high-risk, high-reward stock – run any profit and exit any loss over 20%. It is not intended to be a ‘core’ holding, which I will outline in my next piece.

These are my speculative suggestions for 2024. Do run profits and monitor a 20% stop loss with the moving share price.

‘ Effectively you are saying that if the share price goes down the shorts make a profit. Then you say that even if the share price goes up they fine because they have hedged.’

For Gawd’s Sake this is how hedge funds work!!! The clue is in the name - HEDGE!!!

They could hedge by buying the Bonds. Their greatest risk is a takeover which would see the bonds go up sharply.

Barring total wipe out the bonds should be safe at the current 52 cents.

All I am doing here is quoting broker research? Have I misrepresented this research?

Why are you shooting the messenger?

Please try reading what I actually posted. I merely repeated what was in the Kepler update. Anyone disagree? What did I mislead on?

Re larger shorters, there are 7 shorters. Some have very small positions but there are a couple with 2 or 3% who would be more exposed to a squeeze. I would expect them to have some sort of risk management/hedging strategy in place. This is basic common sense.

Re Kepler’s 20p price target, they clearly expect a dilutive fund raise.

However the good news is that they believe that there is a chance of a takeover. They hedge this by saying then they would have a Buy rating!

To categorically rule out a fund raise, despite every broker and the Company flagging this as a risk, is to defy all credibility

Only broker note I’ve seen updated this year - 17th January

They say

Restructuring sorely required.

Will include equity raise and partial sales at the very minimum. Possibly a D4E as well.

They rate as Reduce with a 20p price target.

A Buy case scenario would be led by a takeover. They reckon a ME or Asian player such as a contractor.

The perfect result for all of us would be a takeover. This risk might explain why the shorters have stopped adding. The 11.5% is pretty eye watering but split over many holdings so no shorter dangerously exposed. And the larger shorters will have hedged.

YB

‘ I find it pretty ironic how the shorters seem increasingly reliant on a dilution yet the lower the share price moves the more ineffective a dilution becomes for Petrofac which in turn forces them to look at other options to solve the liquidity issue.’

The lower the share price goes the greater the risk of forcing a D4E on bondholders. Too many of you are focused on the market cap when you should be looking at the Enterprise Value. Lowering the EV makes a capital raise more attractive albeit horribly dilutive for existing equity.

But hopefully for all of us this will prove unnecessary

I’m a bit more positive today than yesterday since share price appears to be stabilising.

IMO

There has to be a cash raise barring a takeover. It’s the only way to square the liquidity circle. I am surprised the shorters have gone up to 11.2% when there must be the risk of a bid but maybe they are hedged by being long the Bonds.

I’m equally certain that the ‘smart’ money has a very good steer as to the eventual deal. There are simply too many players in the restructuring for it not to leak. The detailed terms may be closely guarded but the broad deal will have been run past a lot of funds and potential investors. There is no alternative to such a complex restructuring. People will be able to guess how well the fund raise is being received

So for me, the bottom line is when does the share price drop to a level whereby the shorters stop selling ie it’s getting too close to their best guess for the placing price.

IF they were able to extend the RCF this would free up $250m. If they could raise say $150m cash, part sell something and agree the mooted amendments with the BHs (I assume prioritising RCF but in exchange for what?), then this could be possible. Does this $450m include the benefits of freeing up the Guarantees?

Some people here idiotically think that I am talking the share price down. It should be obvious that I want the market cap as high as possible because that’s the buffer between me and bond haircuts.

So believe me when I say that the ever increasing short position at the same time as the share price is falling is therefore ominous.

I had a moderately large position during the GKP restructuring but not remotely a big player yet I was made inside. I could have given any mates the nod over what was going on (I didn’t!) so I can assure you that the shorters will know.

If they are increasing their shorts at 11% then they are very confident that there will be an equity raise AND they must be expecting a price at significantly below the current share price.

Slift

‘ The final result to financing will potentially be a combined result of asset sale, bond terms amended, RCF amendments, and even a raise. Definitely not a D4E at this stage.’

Good post, all the broker notes I’ve seen now believe a D4E unlikely. It’s certainly a complicated restructuring since the bonus is unlocking the Guarantees, boosting cash flow. How much cash do PFC need to raise from a placing and sales to free up this cash?

I assume they will part pay down the RCF and look to extend the rest.

And ask BHs to sign off on making the RCF senior and extending redemption date but in return for what? Bonds are already yielding 9.75% so can they afford to pay more?

Ideally they’d like to make a cheap tender offer as per Tullow but can they raise enough cash?

It’s going to be interesting. I wonder if some of the shorters have hedged by going long on the bonds.

Poker

‘ I had $200m but only if they don't sell assets , to cover guarantees, helping to pay back the $90m short term loan later in the year, chipping away a bit off the RCF , providing security for bondholder sentiment , and providing financial sentiment for new tender bidding and working capital and balance sheet overall strengthening’

Sounds about right. When companies are forced to restructure it’s usually pretty comprehensive, not some sticking plaster.

As long as this isn’t too dilutive then will be good for equity which will enjoy a serious re rating. Obviously will reduce upside potential but should make it easier for PFC to win new business.

Clearly the placing price is critical. I bet the shorters have a pretty good idea where this is likely to and it’s currently looking like around 20 - 25p? Obviously if the shorters have to buyback at 25p they are not going to go short at under 25p.

If I had to bet, I’d say nearer 20p but if 25p holds….

A lot hinges on where the money is coming from. If from existing holders then they will want to protect their holdings. If from new money, then they will force the price as low as they can and may even demand haircuts from bondholders.

Perfectly good, solid businesses get rolled over if they have a cash flow glitch and become ‘distressed’ in a lousy market. And it’s currently a lousy market for raising cash.

Who are the major shareholders who might stump up the cash? I know one non exec holds about 15% but other directors are peanuts

PFC Vet

Thanks for your reasoned reply. Apologies if I juxtaposed 2021/2012 but the rest was accurate. There was a near 10% short position in 2021 which was closed via an equity raise.

My view is this is not a toss of a coin because the hedge funds who are shorting this will be vastly better informed than us. They will have contacts throughout the City, the Banks and the oil industry who give them a good steer about how well/badly the restructuring process is going.

They will have a very good idea re the value of the assets being sold and the realistic chances of selling them. They will know what PFC need to do to free up the Performance Guarantees and if PFC’s brokers are sounding out the markets re an equity raise, they will hear about it in principle or in the pub after work.

I hate the shorters and would love to see them burnt (because they often manipulate the facts) but I would never bet against so many of them.

‘ That question was answered several times yesterday.

They exit by scrambling to buy back shares as they add to the spike by buying shares that shareholders like me will not give up.’

But that’s called a short squeeze!!!!

Why are the shorts continuing to increase when it’s so obvious to you lot that they are going to be horribly squeezed?

Back in 2016/7, when GKP was restructuring and I was a Bondholder, I had a protracted debate with one particular poster which got quite heated at times. I thought this guy must be an idiot but after the restructuring, where equity was horribly diluted, he somehow got my phone number and ran to apologise. He was a doctor, an absolutely lovely charming old duffer! Clearly very intelligent but he’d committed the cardinal sin of falling in love with (the potential upside of) GKP.

Investment is all about constant objective assessment of the risk reward. Professional shorters at over 10% should be a massive red flag, especially when, IF PFC can escape without an equity raise, then the shares should fly up and they would be stuffed.

So are they all brain dead stupid? Or are you wrong? I’d absolutely love you guys to be right, to see the shorters horribly squeezed (I hold Metro sub bonds so suffered at the hands of the shorters in the recent restructuring) but risk reward screams caution.

pfcvet

‘just a reminder that pfc has been a short target for years and shorts were previously at c10% earlier last year. no ri, no short squeeze. just an organic reduction in the months that followed.’

the shorts nearly hit 10% in 2012, the year of the bribery fiasco, the $77m sfo fine and the subsequent equity raise of £200m which allowed the shorters a profitable exit.

the current shorters are clearly expecting a capital raise. this must be blinding obvious to all but the most myopic blinked bulls. all the shorters will be acutely aware of the risk of no raise and a squeeze.

so it boils down to who is right. you lot versus £15m of smart, well connected city money. that some of you are completely dismissing this risk defies credibility!

and there’s no point ****ging me off if you can’t explain how the shorters will exit

The ONLY way the shorters can exit a 10.5% position without being squeezed is via an equity raise.

If I’m wrong, please explain how else they exit?

‘ No raise. This has been done to death, shorters bring it up when their eyes are in the headlights of the LONGS.’

I’m really interested. How are the shorters going to exit then?

Or are you saying they are so brain stupid that they don’t have a plan.

‘Hahaha....Paul Curtis zero credibility remains with you....but sure keep pushing the fear agenda...’

If you are unable to understand the obvious truth of what I said then you are the one lacking credibility

It is very obvious that an equity raise is very likely because it’s the ONLY way the shorters can extract themselves from a ball crunching short squeeze. Disagree? How do they exit without?

It is also bleeding obvious that whoever coughs up the cash calls the tune. If it’s existing large shareholders (with something to protect) then existing shareholders should get a better deal. If it’s new money then they will be looking to screw everyone including bondholders.

I take comfort in the price action, I suspect ‘insiders’ have a good idea of the likely placing price and it’s looking like c. 20p?

Hopefully not long to wait…