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Is not replacement cost a better metric for determining value rather than some arbitrary NPV driven valuation?
Ultimately it all boils done to supply demand. If roll out of new storage dries up because revenues too low then revenues must rises.
REITs appear easier/safer as new build costs generally trending up with inflation whereas battery storage looks most exposed to reducing battery prices and improving storage capacity.
Hanoil
The point of this post was to prove that equity can’t stop a BH D4E, even 57%!
And billions of barrels of oil versus billions of back orders. My point was both sets of shareholders thought ‘too big to fail’.
And personally I don’t see much difference between billions of barrels/orders. The oil was a tangible asset whereas Orders are subject to Guarantees and we don’t know the margins.
Anyway I’ll stop posting now until next RNS. I really hope that the restructuring is good for equity because it must then be even better for bondholders. I dream of a takeover. However my prediction is that the PFC share price will be significantly lower than now.
I’ll be back….!
Ivor
You are just a ramper, too lazy to do even basic research. You spout this nonsense because you want to persuade gullible muppets to pile in so that you can profit?
The GKP post is what actually happened. You can track back and check the BBs at that time. You will see how there were plenty like you. You may spot me as well (GHH on ADVFN) having the same argument's and abuse as I’m having now!
Incidentally there was a 100 for 1 share consolidation immediately post restructuring so current GKP is effectively c 1p old money. As in equity got wiped out.
13th October 2016
GKP shareholders felt exactly as you do but Court Order pushed restructuring through
‘ The Restructuring involves the implementation of a new capital structure to materially strengthen the Company's balance sheet with a significant debt reduction from over US$600 million to US$100 million through the conversion of over US$500 million of existing debt into equity of the Company by way of the Scheme.
In addition, Gulf Keystone has increased its liquidity by raising $25 million through an over-subscribed Open Offer. This improved liquidity allows the Company to implement the near-term investment plan of maintaining production at 40,000 barrels of oil per day ("bopd"), and with the potential to increase production to 55,000 bopd, subject to the Kurdistan Regional Government's Ministry of Natural Resources ("MNR") and MOL's approval.
Admission of and commencement of dealing in 21,910,523,553 new common shares pursuant to the Open Offer and Debt Equitisation are expected to occur on 14 October 2016 (the "Admission date"). Qualifying Shareholders will be notified of their allocation of new common shares within 14 days of the Admission date. Due to the Open Offer being oversubscribed, certain applications made by Shareholders under the Excess Entitlements Facility were scaled back in accordance with the terms of the Open Offer. Excess funds in respect of applications that were not met in full will be returned to the applicant within 14 days of Admission.’
Check out the BB comments at this time (early 2016) and you will see identical to here. GKP had billions of barrels of oil, PFC have billions of orders. PI’s ignored that insolvency trumps assets.
Paddi
Because BH/RCF can simply get a court order SoA and force their D4E rescue package on shareholders. Exactly this happened with GKP.
PaddiG
They are all a bunch of ruthless sharks! There will be no quarter given, they will only act in self interest.
Remember the bonds and RCF are equally senior but the RCF’s currently have the technical advantage of maturing before the bonds.
Hence the RCFs will not extend beyond the bond redemption date. This would mean a massive $850m cliff edge in c. 2026.
New equity would look at this and run a mile.
Hence this is all chicken and egg, the restructuring plan has to be transformational otherwise equity won’t be interested. New money will not invest in a company with $850m debt redeeming within a couple of years.
PFC are saying this with ‘materially strengthening’
They are obviously talking to everyone! I’m not saying RCF won’t extend if other things happen but clearly they are not extending as is.
The important bit to focus on is ‘materially strengthening’ the balance sheet. This doesn’t mean extending loans, it means a new cash injection.
Redheaded
Obviously PFC already have tried this!
WG
Brokers value the non core assets at c. $120m. I’m afraid they are not sexy.
Sexy could be selling core assets such as UK but this would leave PFC very exposed to ME. And it would have to be a very sexy valuation to get BH’s and RCF to sign off on it since it’s their collateral. But this seems possible to me although brokers think could be too disruptive.
The other possibility is that they sell say 29% of the equity at a good price to a competitor who would pay top dollar as gives them a foot in the door for a future takeover. But no broker has mooted this as a possibility.
Bottom line is that it appears they need at least $250m (need to pay off $250m RCF by October 2024) cash influx but from where?
And even if they could go into down mode without defaulting what would happen to the share price!!! This really is suicidally nonsensical!
The best hope of a good outcome for equity is a takeover but again the $850m debt at near 10% interest rate is a poison pill.
Otherwise how do they materially strengthen the balance sheet? This is the £1m question. Materially strengthening means a big chunk of new cash from either a very sexy asset sale and/or a capital raise.
I assume you must all agree with this? There is no magic money tree.
Slift
So where do they get the $250m to repay the RCF in a few months time?
How do they hang onto recently awarded contracts without getting the guarantees?
How do they service the debt interest? About $80m pa?
Running down the business leaves shareholders with nothing. An absolute disaster for equity
Amers and Redhead.
PFC have no control over the terms of any D4E. They are currently trying to put enough lipstick on the PFC pig in order to raise the necessary equity cash (to supplement non core asset sales).
A big dollop of this lipstick will be amending the terms of the bonds, otherwise will be very tricky to raise the cash.
There is zero chance that old equity will come out of this smiling if the current bond price reflects the eventual outcome.
It’s like your mortgage provider losing 60% on your loan but you not being wiped out! These are SENIOR bonds for Gawds Sake!
I’ve just bought another tranche of bonds at 42.8 cents. Was amazed I got hit after today’s update which was clearly positive.
Remember the bonds are Senior Debt and pari passu with the RCF in a wind up. I’ve been buying because PFC will survive and the worst case is a massive D4E which transforms the balance sheet. This is not like most distressed bonds where there is a bank with senior debt to pay off before the bonds get a look in.
Hence 42.8 cents appears a crazy price. The restructuring is clearly not good for bonds and since they are massively senior to equity, it’s clearly not good for you lot.
I can only think that equity has said to bondholders ‘we will cough up a load of cash but only if you take haircuts and extend redemption for a few years’.
I’ve said before that cash is King and whoever puts in the money dictates the terms.
If bondholders play hardball and say no, we will do a 100% D4E, they will still need to find some cash down the back of the sofa.
PVC
‘I respect the BoD saying that they are not going to maintain a running commentary, but this weeks flaccid & poorly positioned RNS shows once again the disregard for market sentiment and poor timing shown by the company IR team.’
How would you have phrased this release assuming there is going to be a major equity raise, bond hair cuts and partial D4E? As the bond price (I bt more at 43.4 cents today) and 10% shorters strongly imply.
The RNS allowed for this but you are too rose tinted to see it.
I admire your optimism but when PFC say that they are going to materially improve the balance sheet for the long term they must be also trying to address the $600m bond maturing in 2026?
Otherwise this will be a major overhang post restructuring?
CL
The point is that say asset A is currently part of BH’s security. Sell it to pay off the RCF means BHs lose out. A chunk of their security has gone.
Cheapboy
The senior bondholders did well and equity did pretty well, bearing in mind that junior bondholders took a 40% haircut. It is very unusual for even junior bondholders to get hit without equity being highly diluted.
The reason was that equity and senior bonds coughed up a load of cash at decent prices. Cash is King.
Sanddancer
Good post and you hit upon the most critical point.
‘Materially strengthen’ the balance sheet.
This clearly rules out just fudge loan extensions although these will be important. It means they must raise significant fresh capital but how?
A combination of asset sales with an equity raise is the obvious answer but what will be the mix? Bondholders will not sanction asset sales (effectively to pay off the RCF) unless shareholders make a significant capital contribution to help compensate for reduced collateral.
The more equity can contribute to the pot the better the terms they will extract from BHs. This was perfectly illustrated by the recent Metro Bank restructuring. PFC need one investor with deep pockets and a significant existing equity holding to protect. But is there such a beast?
Bonds were about 49 cents at the open. I’ve just bought some at 43.75 cents.
Par is 100 cents so bondholders are anticipating bad news. Maybe they are all idiots, as are all the shorters. I hope so!
I thought very similar to last update. PFC say they are talking to ‘other capital providers’ in addition to BH and RCF lenders.
The bulls here will interpret this as a new source of lending, the bears will argue that it screams equity raise.
Okay, by popular demand my final post ahead of restructuring. I’ll be back then and I have posting history here and especially on ADVFN under GHH. I am an income investor and my posting history clearly shows this.
My predictions
Bonds/RCF are senior to equity. There is therefore zero chance that equity does better than bonds. This is a legal fact.
The current bond price clearly indicates that the market expects this deal to be bad for bonds. Again this is not me being negative, this is blindingly obvious! It’s called reality!
Selling assets is bad for bondholders so they will not allow this unless they get something in return.
99% of the time that something is a an equity cash raise which makes the bonds more secure. Bondholders may then agree to asset sales to top up the free cash pot. A lot hinges on the RCF’s. They have effective seniority since being paid off first.
Will they extend? This could be a deal breaker since RCF’S are likely to want seniority post restructuring and bondholders won’t want to be relegated $250m down the pecking order in a wind up.
So to sum up I think most likely outcome is an equity raise but impossible to guess the price/amount because hinges on RCF and asset sales.
A takeover would be my dream result but if equity is up on the restructuring I will be absolutely delighted because my bonds will be significantly higher!