Convertible Bonds8 Oct 2019 18:55
Hi all, this is my first post. Excited to be joining the bun fight lol.
I'm a LTH and have been following this BB for a while now. I just have a question and decided to throw it out there to see what others had to say.
In short, what do people think of the idea of convertible bonds (with an option price of say 15p) being sold to strategic investors to raise the first $500m? This would obviously be used to complete the highest risk parts of the project, at which point CF could return to the financial markets for the rest of the cap raise via regular bonds / RCF etc.?
These are the advantages I can see -
1. It will obviously still lead to a dilution, but will defer the dilution to a later date when the share price is healthier and better placed to absorb it. The maturation dates of bonds could even be staggered to spread them out and help prevent large fluctuations in the price when options are exercised.
2. It would (I think) offer the best of both worlds to new strategic investors, since bond holders are prioritised over regular shareholders for any financial recovery in the event that the project falls into administration or simply limps on and fails to meet expectations. So they would be placed ahead of shareholders during the early high risk phase, but then still benefit from the skyrocketing share price alongside LTHs later on.
3. The capital markets will be reassured at subsequent fund raises that we have strategic investors essentially “ready and waiting”, on the condition that the share price goes up above a certain value. So the markets will know that if they purchase SXX bonds, it will drive up the share price enough to ensure large strategic investors get on-board with the project and become major SXX shareholders.
Sorry if I’m rehashing old ideas, just trying to explore potential routes to an outcome that would benefit all stakeholders. Keen to hear people's thoughts on why they think this would/wouldn't work or what alternatives they think are more likely?
Thanks!