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Credit Limit - What on earth makes you think the creditors are happy to take the equity. They are probably far from happy about it but its most likely a choice between doing that or writing off their investment! Its not just the fact that the company needs to convert the existing debt to equity - its the fact that the company needs a new capital injection just to keep going. If no one puts in the new capital the company is finished irrespective of any D4E.
The reality is that the situation is deteriorating rapidly now - if they cant get this through - and bear in mind that this is only an agreement in principal and dependent on the company being able to obtain to obtain the required guarantees - this will go under.
This is an object lesson in how things can go from bad to worse.
In the RNS on 12th April the company said they were in discussions with certain major shareholder regarding potential further investments. These were the only people who might have had any interest in keeping the share price higher. They have clearly either walked away or been unable to raise required funds.
The fact that bond holders are even considering putting in new money in return for more equity - on top of the D4E swap - tells you all you need to know. That they think this is the only way they can prop up the company in order to salvage something from their investment. And if they are having to do this - when even major shareholders cant or won't - then clearly existing shareholders are going to be as good as wiped out.
Going forward they have to ensure that 'New Petrofac' are well capitalized enough to progress the order book - and to give confidence to customers - otherwise there will be no new orders.
The risk is that they will put in just enough to keep them going in the short term.
The price of the D4E swap and capital raise is almost irrelevant. Whatever it is this is going to generate a huge number of new shares which are going to be held by people who really don't want them. Its going to create a huge overhang of shares which will take a very long time to clear. Some will no doubt exit at the first opportunity - others will wait and sell into any price rise in the 'new' shares.
We haven't seen the details yet - but it doesn't look like 'New Petrofac' is going to be an attractive investment.
@ tuan6
Just because your obviously so concerned - I've had a small shareholding in Petrofac since 2017 - and it's been the proverbial jam tomorrow share. And in that time there have been opportunities to sell out at a profit - but every time the company seems to turn a corner it finds another way of kicking you in the teeth. I finally sold out following the RNS in March - because after that I really couldn't see that there is much potential upside to the share price - and a lot of potential downside. For me taking that hit - which was about 1% of the value of my portfolio - seemed the obvious choice. Having averaged down - including picking up quite a lot of shares @20p in December - I actually came away with 85% of my investment - and for me that money is much better invested elsewhere. Its my choice - just as you presumably remaining invested is yours.
But having been in Petrofac so long I think I have an interest in seeing how it pans out. Hope that keeps you happy.
OK - and this is a serious question - if you really think that the £8bm backlog is going to offer little more than turnover - then why are you - indeed why would anyone - be invested here.
The RNSs have effectively said they need to raise new money to progress the backlog - and no-one is going to invest unless they can see they are going to get a return on that investment. And if no-one is willing to put in the new money where will they be. And there has to be a risk that unless they can demonstrate some tangible progress soon they will start to loose the back orders - and then where will they be.
Ivor - if it really came to it they could settle any amount of debt with a Debt for Equity swap.
I think the actual amount in £ is closer to £690m rather than £900m but that's almost irrelevant.
The amount just depends on the issue price:
3,450,000,000 at 20p
6,900,000,000 at 10p
13,800,000,000 at 5p
So if this happens the existing equity (522,000,000)is going to be very seriously diluted - just pick your degree of severity.
In reality I suspect not all the debt will be converted or the lenders may take a hair cut or both.
The real sticking point in all of this however is that whatever they do to restructure the existing debt - someone also needs to put in new capital or else they aren't going to be able to progress the order book.
Its not going to be the lenders if they've just taken a hit and seen there existing loans converted to shares.
Its unlikely to be the bondholders - for pretty much the same reason.
And its not going to be the existing shareholders - because with 58% retail - its going to be pretty hard to raise the amount required - particularly when many are still in denial about the requirement for this.
So the remaining option would be a new investor - but they are going to want to come in at the lowest possible price.
Whoever puts new more in - the board are going to have to persuade that there is enough value in the $8bn backlog - that it will convert to profit and cashflow - or else no-one is going to invest,
And yes you can say that there might be a take over - but given that there board are pretty much confirming that the only alternative is D4E - even if someone came in with an offer why would they much higher than the D4E value?
Todays RNS still refers to delivering on the $8 Billion backlog.
However the issue may well be that the company aren't able to provide adequate evidence of the value in the order book. Can they actually convert this into profits and positive cashflow - as recent history is not on their side in this respect. Who is going to agree to a restructuring plan - or putting in new money - if it just puts them on the hook further down the line.
Even if they do get agreement - and agreement on a cash investment - the RNS makes it quite obvious that PI's will not be invited to take part. Discussions are with 'certain major share holders' - so not doubt Asfari and Azvalor will be allowed to pick up a boat load of shares at deep discount whilst everyone else is severely diluted. And yes PI's will vote it through - because when the time comes it will be made quite clear what the alternative would be.
I'm amazed that the share price today is still managing to hold around the same level as it was following the last RNS - even though its gone from D4E being likely to effectively being confirmed today.
Its not really - as these are just purchases by the company for non-exec directors renumeration. This is as they did on the 5th of April last year - the main difference being that this year they are getting 3 times as many shares - which would be on account of the shares being worth 1/3 of what they were last year.
Evanescent - its worth checking worth your broker if they do actually loan shares from nominee accounts. I'm not sure if any actually do - but if they do then you can certainly change to one that doesn't. Barclays clearly state in their terms and conditions that they do not loan shares from nominee accounts.
Omars - Please wake up to reality. They are creating new shares out of thin air to distribute as part of bonus schemes. They do this every year - most companies do this. There has been a small dilution of existing shareholders without any money being raised. This exercise has absolutely nothing to do with any capital raising which might be required. Personally I wouldn't be using this as a reason to buy even more shares - but each to their own.
Mary - The narrative was turning into 'this is going to be £1 plus within the next two months' without any real justification other than if there was a takeover offer shareholders would accept it - which is almost as baseless as Dogger repeatedly saying 'its over'.
I'm just suggesting that it's worth thinking this through before people start convincing themselves that this is the only possible outcome. I think that's why its called a discussion.
Cuban - Yes you can make some assumptions to demonstrate that $1.5 - $2.0bn might be fair value - and you might be right.
The reality is that the 'market' values this at less than $700m right now - $250m RCF $300m Bonds $150m Equity.
So the question remains - if there is a potential buyer out there who can see that this is worth $1.5bn plus to them and they can potentially snap it up at under $1bn why are they not acting now or at least starting to building a stake at lower cost?
Cuban - I think people are suggesting that the price could be £1 plus - on little more than someone might make a bid. Well yes it's possible that someone might make a bid - but why should it be that high?
The enterprise value is currently about $1bn in debt and equity - and people are posting that this could be bought out at $1.5 - $2bn. The point I'm making is that if someone really did want to buy them out it could equally be much closer to the $1bn - because they can already pick up a chunk of the bonds and some of the equity at much lower levels. A big company with deep pockets will play hard ball - they aren't just going to hand over a huge chunk of money to existing shareholders if they don't need to.
Its over to the board to start resolving the finances and demonstrate the value of the order book. Until they do that its difficult to know what fair value is - but at the moment the market says 25p.
Well yes we'd welcome a buy out offer obviously........but why do you think it would be a high offer?
Surely for anyone with really deep pockets starting with a low ball offer now makes much more sense?
You can point to the the $8bn dollar backlog..... but what is that really worth? It's fine if they can complete it for $7bn....not so good if it costs them $9bn. At the moment we don't have any guidance on this. I'm just saying.
If you have the ability to buy out the whole lot including the debt - before the finances have been resolved - then a low offer makes much more sense. What's the alternative for shareholders?
A low offer lets the shorts out - without triggering a short squeeze - which as a buyer is the last thing you want.
And if you can afford it why wouldn't you be working away in the background snapping up bonds at less than half face value. If you really wanted to take control wouldn't that be a good place to start?
Why not be buying shares at 25p - you wouldn't be visible until you reach 5%.
I'm not saying this to be entirely negative - just don't think this can only go one way.
Great if it does - but more likely a longer, harder slog over time - and one which could well involve shareholder to put more money in first - so at least be prepared for that possibility.
Omars
"Spreading lies with no reference
My price target is 100-150 in 2-3 months"
In that case can you please explain exactly your reasoning as to why this is going up 4 - 6 fold within the next 3 months.
I think the bottom line is that the company will raise capital - because this is effectively what they've said in the RNS.
Both the RNS of 4 December and 5 March say 'materially strengthening the company balance sheet'.
In the December RNS they clearly set out the range of short term measures which they are looking at to improve liquidity then go on to say 'as PART of an OVERALL PLAN these transactions would result in a material Improvement on the balance sheet. The company is ALSO exploring potential financial options across all its classes of capital.
In the conference call in December I think the requirement to raise new capital was again quite explicitly made.
This week in the RNS they state ' ensuring Petrofac has the appropriate capital structure and liquidity to support the strength of its backlog and future business prospects'.
I don't think this is a mistake, or that the RNS is badly written - they are basically saying they will need cash going forward.
Now here's a question to my simple way of thinking:
At the moment the business has an enterprise value made up of debt and equity. Effectively they will be looking to change the balance of this enterprise value away from secured debt on which they pay high interest towards more equity which is unsecured and on which they pay no dividend. But if the order backlog is such a pot of gold the shareholders (and yes that includes me) will be happy to pay up to secure the business?
I know it must be the definition of madness buying Harbour shares ahead of results and thinking they might actually rise....but I topped up earlier in the week. Sold yesterday afternoon at 2.74 for a small profit... and bought back this morning at 2.60..... and already under water!!! The best can be said is that at least the average is coming down.
The biggest unknown in all of this is the 'value' of the order backlog. The company tell us that they have an $8bn order book - but really unless we know if this is going to generate profit and cashflow this is pretty meaningless.