Member Info for PaulCurtis

As I said yesterday an equity raise looks a certainty, everything hinges on who coughs up the dosh.

If PFC can raise sufficient cash from existing large holders then current shareholders will be protected to some extent. Same as Metro Bank, whoever provides the cash dictates the terms. Outside new money, with no existing equity to protect, will demand more onerous terms.

Hopefully PFC have a back up option of a cheap takeover so they have a negotiating last resort.

‘ Read my mind Tuan. Even someone as economically uneducated as myself can see the b*llocks. Why would companies like BP and Tennet invest in a firm that is allegedly doomed? I mean, SP has been remarkably stubborn (touch wood) so far today. I will follow suit, dig myself in like a tick. Unless the shorters want Lyme disease, they should let go...’

Because they know PFC won’t go bust.

The worst case outcome is a D4E with massive haircuts for the Bondholders/RCFs. If BHs are forced to take haircuts then equity is screwed via extreme dilution. However all the latest Broker Notes think that this is unlikely.

Obviously the best case outcome is no equity raise. Somehow PFC sell enough assets, manage to extend the RCF for several years thereby securing the Guarantees/cash position. They are helped by the RCF trading pari passu if a wind up, weakest the RCF negotiating position.

IMO, I am 99% certain there will be an equity raise to supplement this and help persuade the RCF’s to agree to extensions and the Guarantees to get signed off.

This may not be bad news for equity, everything hinges on the price….. logically if PCF was happily trading at 80p a few months ago, then it should be possible to raise say £125m at 30p and the share price to up ie comparable EVs.

But this is the absolute bottom line - new money wants to screw old money.

Others have mentioned Metro Bank - junior Bondholders got screwed (40% hair cut) by

1. Senior BH because they put in a big chunk of cash

2. Existing large equity holders because they put in a big chunk of cash.

Cash is King

Paul Simple QUESTION why do need multiple id's? Sooner the LSE asks for identification, when opening account is better. That way we won't have fecking nutters, with multiple id's.

I only post under this id and GHH. Check my posting history, over 30 years. I occasionally post on X under PaulCurtis.

IPA

10% is high for the UK, it’s currently the most shorted stock.

You say a new bond issue is the answer and compare PFC to BP. Existing BP bonds are not trading at 52 cents on the dollar!!!

Shorters have bet £15m. If there is no equity issue they are screwed. If PFC manage to get though this without an equity raise the shares could easily double. Then add in the short squeeze. It could be a blood bath for the shorters.

I’ve learned the hard way that market insiders usually know more than us….

‘Why would a short position stop a M&A? I thought it would help as they have reduced the SP.’

It wouldn’t but it’s clearly something that the shorters have dismissed. Therefore, for some reason that I don’t understand, it looks unlikely.

If it was just 2% shorters I’d be more relaxed but over 10% is scary. They all know that at 10% there is an eye watering risk of a bear squeeze if they are wrong. They MUST therefore be very confident.

This is not rocket science. And it should be obvious to all of you!

Those of you with long memories will remember me posting on ADVFN (as GHH) re Afren, Bowleven and GKP.

Red

The inescapable facts are that shorters, who have access to far better research than us, who are smarter than us, who have cosy little nudge nudge, wink wink drinks with their City mates, are overall massively better informed than us.

PFC is the most shorted stock in the UK. The Bonds are trading at 52 cents on the dollar..

The level of denial on this Board is like Monty Python’s Black Knight - it’s only a flesh wound.

Where there’s smoke there is often fire. Any one here who dismisses the risk of an equity raise is an idiot and shouldn’t be investing in stock markets.

I have a large position in the Bonds (over £1m), no short equity exposure at all. I want to see equity as high as possible so that a substantial equity raise is easier/less dilutive and my bonds can therefore continue to make a fabulous payout.

My dream result would be a takeover . This appears feasible (PFC the top player in the ME) but for that 10% short position…

When I first started investing about 40 years ago a very experienced investor gave e some great advice.

Jettison all emotional baggage, never fall in love with a share. It’s all down to cold blooded analysis of risk reward.

Imo the best outcome for equity is a takeover and this should be a definite possibility. A partial asset sale alone won’t raise enough money, the assets for sale are too small.

What worries me the most is why is there such a large, and increasing, short position when there could be a takeover at a significant premium to the current share price?

Clearly the shorters view this as very unlikely. These guys have access to info that is denied to us mere mortals, they will be better informed.

If this doesn’t doesn’t worry you then you have no objectivity.

Https://www.petrofac.com/media/news/petrofac-expands-role-with-bp-in-west-africa/

The Bonds are trading at c. 52 cents, shorts increased to over 10%. If it looks like a duck, it walks like a duck etc….

This is screaming imminent equity raise but how dilutive and at what price? How much cash do they need to raise to secure the performance guarantees? And can they agree extensions to the RCF’s otherwise they need to find another $250m next year?

Broker consensus is now that a D4E is less likely so good news for equity since that would be horrendously dilutive. But a large equity raise at a significant discount to current share price must be a very high risk.

Yes, if PFC can scrape through without an equity raise then shares should rocket.

But risk reward looks lousy, that > 10% short position, says it can’t. Don’t be so arrogant as to think that you know more than all these professional

I hold the bonds

Price target 40p, this includes dilution from an equity raise. Much greater upside if Petrofac can sort their liquidity problems without an equity raise. They view this an unlikely and hence the 40p price target factors in a raise.

IMO until we see the shorters diving for cover an equity raise looks a certainty. These guys can’t all be wrong at near 10%.

The bad news is they think PFC will struggle to raise much cash from partial sales,

JDS is $56 m book value

IES is $69m

Bit of real estate but relative peanuts

A minority stake is say the EPS business. This is a core part of business so unlikely to be able to sell more than $50-100m worth.

The possible good news is that they give increasing weight to a takeover since market cap is c.£100m and bonds trading at 40 cents. Say likely to be ME or Asia.

Just seen their update, pretty positive. They value PFC at 85p core DCF BUT THIS IS BEFORE RESTRUCTURING. Obviously we don’t know how dilutive this will be but does open the door so a partial sale of the company. Or even a takeover but again, and I can’t over stress this enough, the 9% short is a massive position and I can’t believe ALL these guys have got it wrong.

Barclays say that the company’’s core market is as active as they have seen, has best presence in Middle East and could therefore have the most appeal to an investor in the MENA area/

This note was dated 4th Dec so the shorters have read it and since increased their shorts…..

OSG

Remember that JPM are house brokers, they will not flag an equity raise risk and will offer the most +ve spin.

IMO an equity raise looks nailed down. The question is how bad/good is this for current shareholders. I’m confident that PFC will take this opportunity to significantly improve the Balance Sheet rather than scrape through with bare minimum to secure the $200m guarantees.

For existing shareholders, the good news is that New Petrofac will be much more highly rated but at what cost in terms of dilution.

The way the shares are trading it looks like any raise might be a 15p but this is a wild guess. Bearing in mind the new shares should trade at a decent premium to this (could be a RI rather than open offer) then existing holders at 18p could be okay.

But if shares drop below 15p….

We all need to see the shorters start to close, or at least stop selling, this would obviously mean that we are near any equity raise price?

Less detailed than the PH Note.

Says getting the guarantees could free up $200m cash inflow.

And PFC not breached covenants re min cash levels of $75m

I’m wondering if the amendments that PFC are meant to be asking Bondholders for are to allow the RCF bank loans to rank higher than the bonds. Currently all debt equally ranked. This could mean that PFC can extend rather than pay off the RFC.

There is a way that, conceivably, equity could wriggle out of this relatively unscathed IF PFC can access that $200m without an equity raise. It’s chicken and egg, a confidence issue.

But as I said yesterday, PFC must have a very good idea what hoops they need to jump through to get this $200m and the near 9% short position screams equity raise. The City will know what’s going on.

This is all looking very similar to the recent Metro bank reconstruction, a viable bank with mid term liquidity issues forced (by shorters) to transform the balance sheet from weak to (perhaps unnecessarily) strong.

Share slide today probably result of this PH broker note which said an equity raise was probable and identified the likely assets for sale. I’m afraid nothing of substantial value.

The equity raise may not be a disaster for shareholders at this level since I suspect it will be conditional on bondholders taking a significant haircut. This would explain why bonds are so low yet shorters have not closed.

Say, and a wild guess, bonds take a 30% haircut, a 20% D4E (so bond debt therefore reduced by 50%) conditional on an equity raise of €150m at say 15p

Net assets will have increased by $450m but offset by the issuing of $270m new shares at 15p so current shareholders are left with 25% but New Petrofac a vastly more desirable investment.

In these situations, where an equity injection is critical, whoever coughs up the cash dictates the terms. You guys must hope it’s not the Bondholders - it’s unlikely they would want more equity if a partial D4E.

A very important point is that Petrofac must know what they need to do to free up the guarantees/upfront cash flow and it may not be as onerous as the above.

But imo it will include an equity raise and possible BH haircuts to improve the balance sheet.

DK

Normally it means the shorters expect to close out via an equity raise, especially at 8.5%.

I’ve been investing for well over 30 years and learnt that the smart money (ie quasi City insiders) always knows more than me. Any equity holder who is not very nervous about this 8.5% short position is a muppet.

It’s possible that there will be a smallish equity raise with no BH D4E equity wipe out. Hence bonds still c. 40 cents.

But until the big boy shorters start closing this reeks of an equity raise. Remember the City will have a pretty good idea about this asset sale and how much it will raise.

Bonds were up slightly today

I’m a bond holder (closed up slightly at 41 cents) and would love to see the shorters running for the door since I’d rather stick with the income and avoid a D4E.

However shorts are actually increasing, up from 8% to 8.5%?

Bonds are currently offered at 40.5 cents, that’s a firm offer. I’m trying to buy at 39.5 cents.

GJ - thanks, I get the broker research about 3 days post issue so will revert end of the week if anything interesting. They must know what’s being sold and the likely value.

Bond weakness implies this is a significant lump of money. Only other reason for bond weakness could be that funds that were short equity hedged by going long on the bonds. As they buy back equity (making a very good profit) they are closing their bond hedge albeit at a loss.

I’m not sure why some on this forum view my posts as a negative for equity? Bonds were trading strongly at 50 cents when we all expected an equity wipe out via D4E. IMO this has to now all be about the asset sale allowing equity to possibly escape whilst devaluing bond security by paying off the RCF first.

But are the shorters really closing? This is the kicker? Last night’s summary was unchanged? Someone posted it here?

Harry

I bought 200K mid morning at 45 cents, 200K at 39.9 cents at lunchtime and 200K at 39.5 cents mid afternoon. I was bidding 37 cents for another 200K but unsuccessful, I’m told they were slightly firmer at 4.30pm.

I’m bidding for another 200K at 39.5 cents this morning.

Bonds are currently offered at 39.5 cents, down 20% on the day.

Conundrum appears to be explained by the proposed asset sale. Appears that the Banks, which rank equally with the Bondholders, are somehow lined up to get paid off with this cash, probably because they are due 2024 and the bonds are 2026. Hence BH’s are being asked to amend certain clauses re their security. I assume BH’s will get some sort of a sweetener to get their consent.

Means the bonds lose part of their security, hence the sell off.

However could be good news for equity, hence the shorters are panicking in case PFC managed to escape without a massive D4E.

Equity is up 20% on the day, Bonds are down 20%. I just bought some at under 40 cents.

Makes no sense? Okay, maybe shorters are being squeezed but why are they closing if Bond holders think update that bad!