Cloudbuy PLC chairman abandons EFH deal and admits voting rights are lost

Fifty pound noteThis morning saw another round of fallout in the Equity First Holdings (EFH) scandal, with Cloudbuy PLC (LON:CBUY) chairman Ronald Duncan deciding to abandon the planned second part of his “sale and repurchase” deal with the firm:

Ronald Duncan, Chairman, has notified the Company that he has agreed with Equities First Holdings LLC (“EFH”) that he will not proceed with the transfer of the second tranche of 2,250,000 ordinary shares of 1p each in the Company (“Further Transfer”) to EFH which was expected to take place by 11 December 2014.

Unsurprisingly, Cloudbuy shares have risen on news of Mr Duncan’s change of heart, and were up 5% shortly after the markets opened.

However, what’s more interesting is that Mr Duncan puts a different spin on the voting rights implications of the EFH deal than did his AIM counterpart, IGas chief executive Andrew Austin, yesterday.

Bizarrely, Mr Austin claimed that he remained interested in the voting rights of the 7.5m shares he had transferred to EFH, despite not owning them. Cloudbuy’s Mr Duncan, however, has taken a more logical approach and admitted that “the voting rights for the Transferred Shares are with EFH”.

However, Mr Duncan didn’t go so far as to admit that he no longer has any interest in the shares at all, claiming, as did Mr Austin, that he remains interested in the first tranche of 2,250,000 shares he transferred to EFH because of the repurchase obligation in his agreement with the firm.

As I explained yesterday, assuming all of these corporate leaders have signed similar agreements with EFH to those employed by Quindell’s Rob Terry and Laurence Moorse, the credibility of this repurchase obligation seems questionable: the only security for the deal is the shares which have already been transferred. What’s more, it seems the EFH agreements can be dissolved, without further recourse, by merely refusing to pay a margin call.

Of course, Mr Austin and Mr Duncan may have more robust repurchase obligations than those assigned to Mr Terry and Mr Moorse. We can’t be completely sure.

Disclosure: This article is provided for information only and is not intended as investment advice. The author has no interest in Cloudbuy or IGas Energy and a short position in Quindell. Do your own research or seek qualified professional advice before making any trading decisions.

IGas Energy PLC keeps digging as CEO Austin defends Equity First deal

Fifty pound noteToday’s underwhelming interim results from IGas Energy PLC (LON:IGAS) were followed a few hours later by a second RNS, defending the IGas chief executive Andrew Austin’s share sale and repurchase deal with Equity First Holdings, of Quindell fame.

My jaw dropped as I read the RNS — IGas must really think its investors are mugs (a bit like Quindell, come to that). Here are a few highlights:

Under the terms of the ‎facility with EFH announced on 16 January 2014, Mr Austin transferred  a total of 7.5 million shares to EFH and received the net sum of £7,009,533, equivalent to 93.46p per share transferred under the agreement. Mr Austin both fully intends and is required to repurchase all of these shares at the end of the three year term, by repaying the facility at a cost of £7,899,870 equivalent to 105.33p per share.

He intends to repurchase the shares, but since the shares themselves were Mr Austin’s only security for the deal (see here), what recourse does EFH have if Mr Austin decides not to repurchase them? Probably none, I’d suggest, making the obligation to repurchase somewhat flimsy…

Furthermore, why would anyone in their right mind repurchase the shares at 105p when they can be bought in the market (as I write) for 58p?

Whilst Mr Austin has transferred title to the shares and waives his voting rights in these shares, he has the right with five business days’ notice in the event of certain corporate actions, to terminate the arrangement and on repaying the facility to take back and vote the shares

This is rather like me saying that I’ve waived the right to use the car I sold last week. Honestly — you can’t waive the voting rights to shares you don’t own: you don’t have any voting rights.

As regards buying back the shares in the event of a corporate action, I’d suggest he wouldn’t have entered into this agreement if he thought a takeover bid was even remotely likely. Furthermore, in today’s market he could lock in a big capital gain and regain his voting rights by buying the shares back in the market. It would be crazy, as I mentioned above, to buy back the shares from EFH.

It gets better:

Whilst the facility is contracted by way of a sale and repurchase agreement, the arrangements are treated as a loan from an accounting and taxation perspective.

I know that accountants are paid to cut your tax bill, but surely having your cake and eating it in this way just isn’t possible?

Anyway, I’ve saved the best for last (my emphasis):

As a result of this and subsequently disclosed further acquisitions, Mr Austin has an interest for disclosure purposes in the voting rights attaching to 10,967,075 Ordinary Shares representing 3.7 per cent of the issued ordinary share capital of the Company, which includes the shares transferred to EFH under the sale and repurchase agreement (as a result of the buy-back obligation).

Assuming Mr Austin’s contract with EFH is similar to those of Messrs Terry and Moorse at Quindell, we got a taste of how effective the EFH buy-back obligation is this morning, when Quindell issued the following statement on behalf of Mr Moorse:

Laurence Moorse has informed the Company that he received a notice of margin call under the agreement with Equities First Holdings LLC (“EFH”) … Mr Moorse did not meet this margin call which, consequently, has led to the termination of the Agreement.  As a result, his right to repurchase 200,000 ordinary shares of 15 pence each (“Ordinary Shares”) transferred by him to EFH under the Agreement will be terminated with effect as of today.

According to Quindell’s earlier RNS, Mr Moorse was “required to redeem the transferred shares”, Yet all of a sudden, the “loan” agreement has been terminated, and Mr Moorse is free to keep the proceeds, without further recourse. Quindell also issued a near identical statement on behalf of Rob Terry this afternoon. He too has teminated his agreement with EFH following a margin call.

If this is the kind of “buy-back obligation” that Mr Austin is subject too, then his claim to have an interest in the shares he has sold to EFH is questionable, in my opinion.

Disclosure: This article is provided for information only and is not intended as investment advice. The author has no interest in IGas Energy and a short position in Quindell. Do your own research or seek qualified professional advice before making any trading decisions.

 

Third time’s a charm: do 3 profit warnings make Petrofac Limited a buy?

Offshore oil or gas platformInvestors who ignored the old stock market adage that profit warnings come in threes will have had their fingers burned when Petrofac Limited (LON:PFC) fell by more than 25% yesterday. I know — I was one of them.

However, I’m not disheartened, and am even contemplating a top-up position to average down on my original purchase price (a little over 1,000p, since you ask).

In a new article for the Motley Fool today, I explain three reasons why I believe Petrofac is now priced to buy, and could offer as much as 50% upside — plus dividends — over the next two or three years.

To read the full article, just click here.

Disclosure: This article is provided for information only and is not intended as investment advice. The author owns shares in Petrofac. Do your own research or seek qualified professional advice before making any trading decisions.

African Minerals Limited shareholders: destination wipeout

Iron oreBack in October, I took at look at the latest (perhaps last) interim results from African Minerals Limited (LON:AMI) in an article for the Motley Fool.

My conclusion was that despite an apparently impressive 58% rise in production, the operating loss and balance sheet told the true story, and shareholders were very likely to face excessive dilution or simple wipeout.

So convinced was I, that I opened a small short position on the stock, once sufficient time had passed after the article’s publication to meet the Motley Fool’s disclosure rules.

Yesterday morning African Minerals’ stock was suspended pending an announcement, and once the markets had shut and attention had shifted to the commute home, the firm released its latest financing update (here), at 5.36pm.

There’s no more money

Unsurprisingly, African Minerals’ Chinese backer, Shangdong Iron and Steel Group (SISG) has decided not to release the final $102m of funding it had promised. And indeed, why would it? With the iron ore price down to $70 and showing signs of heading further south, SISG can either wait until the outlook improves, or demand a more generous share of Tonkolili in return for keeping it afloat.

As for debt, I explained in my Fool article that African has too much debt already, and it appears as if the firm’s bankers, Standard Chartered, agree. Last night’s announcement confirms that the bank has failed in its mission to structure a new debt facility for African Minerals.

What next?

To sum up: African Minerals can’t get the remaining $102m that came as part of a 25% farm-out deal of its Tonkolili mine. The firm can’t borrow any more money, either.

There’s only one way left to raise more funds: wipe out shareholders. This could take place in one of three ways, I suppose:

  1. Disposing of a further share of the Tonkolili mine at a bargain basement price, probably to SISG. I suspect this is the most likely outcome. This would dilute shareholders’ stake in the mine, devaluing their shares still further.
  2. Carry out an equity raise at a brutal discount to the already low share price — again, existing shareholders would see the value of their shares decimated. However, this would probably be hard to pull off, even at a crazily large discount.
  3. Let African Minerals Limited go bankrupt, sending the shares to 0p, before flogging the underlying operating companies at a bargain price to a private buyer. This is simply a more ruthless and perhaps more likely version of (1), above. It would not be a great surprise to me if AML boss Frank Timis ends up owning Tonkolili — another of his firms, Timis Corp, recently purchased the London Mining’s nearby Marampa Mine out of administration, with the intention of enjoying cost efficiencies by sharing existing AML infrastructure… Mr Timis is also known to enjoy good relations with the Sierra Leone government.

The shares remain suspended, so for long and short holders alike, the die is cast: now we wait.

Disclosure: This article is provided for information only and is not intended as investment advice. The author has a short position in African Minerals Limited. Do your own research or seek qualified professional advice before making any trading decisions.

How bright is the outlook for J Sainsbury plc?

A share tip circled in a newspaper share listingUnder the leadership of Justin King, J Sainsbury plc (LON:SBRY) built an enviable reputation for outperforming its peers, thanks to 36 consecutive quarters of like-for-like sales growth.

That era is now officially over, but I’m not sure the firm’s management really believe it.

Despite last week’s interims being dominated by a strategy shift involving a hefty dividend cut, a £600m+ property impairment and the admission that 1-in-4 of its stores are a little too large, Mike Coupe and his colleagues seem to believe that they won’t face the same level of competitive pressure as Tesco and Morrisons.

Chief executive Mike Coupe’s position seems to be that by continuing to aim upmarket, Sainsbury can get away with more targeted price cuts than its peers — i.e. it will remain slightly more expensive, as it is currently, in my view as a regular shopper at Sainsbury, Tesco.

I’ve other concerns too — but to find out more and decide for yourself, have a read of my latest Motley Fool article, in which I take a closer look at the issues above, and at some of Sainsbury’s latest financials.

You can read the full article here.

Disclosure: This article is provided for information only and is not intended as investment advice. The author owns shares in Tesco and Wm. Morrison Supermarkets. Do your own research or seek qualified professional advice before making any trading decisions.