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.
I think the bottom line here is that the company will need a cash injection - not necessarily just to survive - but certainly to be able to move forward, to deliver on and grow the order book. I don't think this is a secret as they effectively said this in the conference call in December. The only question is when that call is coming and how much will they need.
Now at this point I think the interests of the board and shareholders may not be entirely aligned. I'm suspect that Tareq Kawash would rather draw a line under the past as quickly as possible and not want to be continuously fire fighting just to keeps heads above water. So I think the subtle message in the RNS yesterday was that call might be coming sooner.
I'm sure they are trying as hard as they can to bring cash in through the various measures they have outlined previously - but this on its own is unlikely to be enough to support the company moving forward. We also know that asset sales are likely and that they will need agreement of bondholders. My feeling is that they will say yes - interalia that the company also raises cash. As this will put the company on a much more secure footing it would be in the interests of the bondholders to agree - as the bonds will rise in value. If they don't agree where does it leave them - D4E possibly. Now I don't think this is a good option for bond holders - probably as they won't want shares - but also because ultimately its then going to put them on the hook to make up any cash injection too - and they certainly won't want to do that.
So to me it looks fairly certain that existing shareholders are going to be asked to cough up, probably in the form of a placing, and possibly with a new major investor. With the present low share price a new investor is going to be the issue - as they are going to want a bigger piece of the cake, which will dilute the existing holdings. So the question comes back to how much will they want - and what price can they get it away at?
To me this looks like a holding RNS that's been put out to try to stem the slide in the share price from last Thursday. We don't know the reason for this - was it due to the removal from the MSCI index or was it Schroders further reducing their steak - but either way the share price has clearly softened again. Do the board actually think the share price has gone too low now - or is the drop buggering up their negotiations?
The RNS doesn't say a lot more than the previous announcement in December - things are still ongoing with apparently nothing ruled in or out - and for this reason I'm not sure this announcement is actually going to offer much support. It doesn't offer much reason to buy now - and tells the shorts that they've potentially got another 6 or 7 weeks to play before the results. The wording does leave open the possibility of a further announcement on funding before that - but it doesn't seem likely.
The wording 'materially strengthening the Company's balance sheet' is probably key in this. It is clear that this does need strengthening beyond the short term issues - they can't continue to limp along for 2 or 3 years trying to progress the $8bn order backlog without a much stronger balance sheet.
From the RNS in December to me it looked like they were trying to resolve the short term issues through the various initiatives outlined in the RNS and hope that this would improve the share price significantly. That would put them in a stronger position to deal with the longer term issues. Three months on is that still the plan and is it achievable.
I think it will be interesting to see what the shorts do in the next few days. Do they see an opportunity to increase their short positions? Do they think this is a s good as its going to get and start reducing. If they all want to make an orderly exist ahead of the results then they are going to have to start making a move now.
Companies no longer need to advise of results announcement dates in advance - so I suspect Petrofac wont be giving a date. I would anticipate that they'll wait if they can until they can make an announcement on the financing at the same time as the results. We already more or less know what the results are going to be from the Trading update in December - and it's not going to be great - so making these as a stand alone announcement probably isn't going to help our case anyway.
Positive news on financing will make last financial results look like old news anyway - so I think its a case of just waiting however impatient we might feel.
SM66 - we have not been delisted - and this is absolutely nothing to do with a take over or bankruptcy.
The change is simply that Petrofac has been removed from the MSCI Global Index of UK small cap companies - because of the drop in the market cap of the company Petrofac no longer qualify for that index. They have now been added to the micro cap index instead. There will be companies that track the index - and they may have had to sell out of Petrofac if it is no longer in the index. Some institutions may have rules that allow them to invest in small cap companies, but not micro caps, so again this may have forced some to sell out.
As there are so few institutional investors in Petrofac personally I have to say I was surprised at the size of the shares traded on Thursday and Friday - I didn't anticipate it would make that much difference. But then maybe it wasn't all directly due to the change in the index.
I think that this is a case where although or shorting friends might not have inside information on the company - they will know a lot more in terms of what impact this change of index might have - and whether they would be able to trade on this.
Someone with more knowledge might be able to shed a bit more light on this.
Well 32m shares were traded yesterday - so something obviously happened - and as usual the mug PI's will be last to know.
If the shorts reduced we wont find out until Monday apparently.
And if Schroders reduced or sold out we'll probably find out in about 6 months when somebody can be bothered to produce the TR1!
At that rate its going to take a while to make any meaningful reduction in their short position. Maybe they are just looking to trim a little - given how exposed they are - and took advantage on a day when there was no buying pressure. It will be more interesting to see how this develops over the next few days - was it a one off or the start of a larger reduction.
Well it's a reduction! It means that they bought over 400k shares on a day when just 1600k were traded in total.
It will be interesting to see if they reduce further given that they are still a lot more exposed than any of the other shorts.
Poker
Well yes - except in this case we are talking about information that should have been freely available to everyone - and which for some reason Schroder's did not disclose in accordance with the regulations.
We all know that the reality is the market is going to be slanted against PI's - but it doesn't help when the big fish clearly break the rules.
Poker
I agree with you regarding shorting - its not the issue - as you said market transparency is the issue.
I think LTH in Petrofac are only too well aware of issues bribes being taken - otherwise we wouldn't be in this mess!
But perhaps why we might also expect a level playing field - we get caught whilst others seemingly get away with it.
Poker
The issue is transparency - so as far as possible there should be a reasonably level playing field for investors. In failing to properly declare their share sales properly, Schroder's have withheld information which should have been available to all investors. What we don't know is whether this was due to negligence or as a willful action.
What we do know is that this information would have been very useful to short sellers. Did they somehow get hold of this information - and again if so was this action by a single person acting on their own or was it connected to the company?
Is it really pure coincidence that during this period of share sales by Schroder's, that Petrofac also became the most shorted stock on the market. And nobody knew anything?
It needs investigating at least - otherwise one might get the impression that the LSE is potentially a cesspit of corruption.
Checked this on the MSCI website. It appears that Petrofac is presently in the small cap index - which it will be deleted from at the end of the month. It will then be added to the micro cap index as per the list posted. So this appears to be a change that reflects the reduced market cap.