The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
This last series of posts has captured the situation well. On reading the 5 March RNS rejecting RRE initial approach, I see that Rupert Newall is shown as Head Of Corporate Finance at IOG. He is a very experienced oil M & A banker, and knows how to manage the sale of oil and gas assets an companies. IOG is fortunate to have him on the team - will also give confidence to LCF administrator that IOG can handle the process of extracting value from the company.
I don't think we'll see 100p, but it is a reasonable estimate of the NAV of IOG, and it underpins both the sale of the PLC or the farm-out - there's plenty of value on the table for everyone to feel positive about any deal. I also don't agree that bidders will try and buy from the administrator , because LOG funding was via convertible loans/warrants. This means that, unusually, the administrator is very interested (and incentivised) to maximise the IOG equity value and hence recovery via warrants (over and above the repayment of loan principal and accrued interest. So I'd expect some sort of competitive, structured process to sell the company.
I really liked the idea of farm down strategy to realise value and reduce funding need, but the RRE offer has changed the dynamics - IOG is in play, and LCF administrator playing a key role. Potential farm - in partners will likely want to operate, and therefore will likely prefer to bid for the company to reduce partner risk. Theres probably better value, and less risk for them through that mechanism. So this will be a formal auction for the company - still a good outcome for shareholders.
Good point happysparrow. Ineos is exactly the type of company I would expect to get involved in this situation - either as farm in partner or bidder for IOG. Strategically committed to SNS gas, cash rich, opportunistic.
Trading IOG is now covered by takeover panel rules, - hence the disclosures , and were will be many more of these until the company is out of a possible takeover situation. Finncap looks to me like increasing its book size to allow it to make a market given increased volumes and volatility.
Agree Lignum, and they have also derisked the company somewhat for us - all stakeholders can now see the value pool that exists to be secured - shareholders, farm in partners, corporate bidders (who may see competing for the PLC as better than a farm in (Like RRE), LOG , LCF administrator. If this turns into an actual contested offer, we will also get much more public information about project reserves, costs and timing to support the Boards decisions.
LCF administrator will play a key role in the auction of IOG - and that is what will now happen. LOG loans and warrants are a tangible source of value to the administrator, and i believe they will support the Board in extracting value from this situation, in terms of loan extensions/ renegotiation of terms. But they will want to see a ‘liquidity’ event - either through farmout or sale. So i would expect higher or counter offers given the significant discount to asset value that exists.
IOG still being run by BOD in the interests of IOG shareholders. LCF administrator involvement helpful imho. IOG creditors and shareholders are aligned for the time being in terems of executing a development ‘cash and carry’ farm-down and subsequent capital raising.DYOR
There is plenty of capital for North Sea assets at the moment- equity and debt (but not on AIM unfortunately). But IOG's room for manoeuvre is constrained by its market valuation (which is highly prone to bear raids), and so I wouldn't be surprised if the Bod conclude the best way to realise shareholder value is some sort of partial asset trade/development carry - thats what I'd do in their shoes. I do think the BOD should be communicating more at the moment given the negative sentiment that has taken over.
Citizen - I agree with your thesis. LOG withdrawal could actually be beneficial. IOG would not have got this far without LOG, but could benefit from more conventional owners going forward. IOG have to make sure they repay LOG loans as scheduled. I could see a buyout of LOG investment in IOG (equity warrants and debt) as part of the overall funding, and I don't share BUTD pessimism, although it is certainly a risky situation. As I said earlier, we have significant NAV to play with and there should be room for everyone (exiting and future equity and debt providers) to make good returns so long as all participants are flexible.
The LCF Administrator will be looking to recover funds borrowed by LOG and others. LOG in turn will be looking for IOG to repay loans as scheduled, so IOG needs to have a refinancing plan in place (probably as part of a larger FID/FDP funding package). We don't know the terms of the loans between LCF and LOG, but I wouldn't be surprised if there is some agreement between the administrator and LOG to reschedule repayments to maximise recoveries - this in turn may provide IOG with some potential to reschedule its LOG loans likewise. We'll soon find out I would imagine. Also, LOG warrants in IOG are an asset that they might want to, or be forced to realise - so a change of control of IOG may also be part of what happens next. This could get bumpy for IOG investors, but huge discount to NAV should help us. DYOR
market smelling positive news on the way - I'm sure management know that they need to be proactive on communicating steps towards FID
What an uplifting set of posts
Its not clear what the implications of the FCA investigation might be for LOG, but it seems likely that they will not be able to provide more capital, and they may well come under pressure to return funds to LCF. This could mean they look to sell their IOG loans and/or IOG warrants (a controlling position) to a 3rd party interested in the assets as a prelude to an offer. IOG needs to get some financing options in place quick to avoid any default to LOG. There is a lot of asset value on the table, but if IOG BOD are not careful, shareholders (and management) may not actually get to see the upside.
redmac - I believe the FDP has to include a complete funding plan, BUT its clearly in all shareholders interest (including management and LOG) that any equity component is issued at the optimal time.This will not likely be on day one, but as you say after certain debt funded milestones have been met. I don't know what certainty the authorities will require over any equity component, but there are various underwriting approaches that can be taken, or the use of hybrid capital such as convertible preference shares to 'bridge' any valuation gap. This is where the CFO earns his bonus........
Mouldie - its a judgement. Some posters believe the funding will be net dilutive to the equity value. And if they genuinely believe that (and are actual holders) then they obviously should sell. I would say that view is not widely held on this Board, and most are comfortable to hold or add to their positions in the belief that removal of funding risk will be net accretive to NAV/share and hence share price.
Hi All - this exchange does really sum up the investment/divestment case for IOG. Technical and commercial uncertainties are, for now, secondary to financing risk. Either you believe that the financing package (various debt tranches, and equity) will increase risked NAV, or you believe the opposite. I'm very comfortable given what I know about the assets, markets and infrastructure to hang on to my shares, as I can only see upside in equity value from here following successful funding package announcement. Thereafter the equity will be more leveraged (a good thing ) and value will be driven by completion of project milestones. Remember that the CFO is very experienced in capital market structuring, and the Chairman and CEO have both executed similar business plans before. DYOR
anticipating the inevitable CGT rates rise, and remain v positive about IOG prospects
GG - that was me - bed and isa at 31.5
The real news here is pipeline integrity. 100% owned export route with spare capacity for 3 rd parties at next to nil cost. These gas assets are highly commercial, will certainnly be developed and a slippage in first gas is neither here nor there in terms of net asset value given the discount that IOG trades at. Long term Investors Will see this as positive.