Monday, August 6, 2018

What happened to other Debt Restructuring Exercises - Ausgroup

Ausgroup is not purely an oil and gas or marine company. It is also heavily involved in mining of iron and lithium and predominantly, their business is in Australia. What strikes me about this company is that it did not undergo a court supervised moratorium process, it engaged SIAs for assistance and underwent a restructuring process with its Medium Term Note (MTN) holders ( those kind need minimum $250,000 for a note). It has a substantial shareholder ( in a range of 15% to 20% shareholding before the troubles began) in Ezion, who is facing troubles of it's own. Ausgroup also owes Ezion shareholder loans. Unlike Hyflux, it does not have retail investors ( perps or preference shares).
Disclaimer: I am not an investment advisor. Heck, i am not even working in the financial industry. Below are my interpretation and i am grateful if you will let me know if anything i say is wrong and i will correct it in a reasonable time. I am not an expert and don't wish to be assumed to be one. I make losses frequently.

The journey of the MTNs holder (S$110 million 7.45%pa due 20 October 2016)

May 2016 - DBS Trustee notified Ausgroup of a breach in a convenant whereby the total equity fell below a certain threshold.

June 2016 - During the informal meeting with the noteholders, Noteholders were informed that DBS is a financier for :
1) Term loan facilities of US$12,769,650
2)Banker’s Guarantee Facilities of up to an aggregate amount of AUD51.2 million
3)Short Term Loan Facility of AUD30 million
4)Account Receivable Purchases Facility of AUD8 million
5) Account Receivable Purchases Facility of AUD15 million

Sep 2016 - Noteholders agreed to
1) Extend maturity dates by 2 years to 20 October 2018
2) A partial principal repayment of at least $4 million
3) Interest will be paid monthly at a rate of 7.95% pa for the year ending 19 October 2017 and 8.45% pa for the year ending 19 October 2018;
4) Make-whole premium. If notes a redeemed earlier, a 9.45%pa on the principal is payable on the outstanding principal
5)Redemption premium - 10% capital gains on sale of ports is payable if redeemed earlier than 20 October 2018

May 2017 - MTN noteholders and Ezion was asked to do a debt-to-equity conversion at $0.058. This was at a premium of 6.62% above the VWAP ( volume weighted average price) of $0.0544 on 18 May 2017. Understandably, the acceptance was low, Ezion only accepted to convert $8 million ( out of permitted $42 million) of its debt to shares , while only $28 million worth of  MTN notes ( out of $110 million) were converted.

Sep 2017 - MTN noteholders were asked again to do a debt-to-equity conversion at $0.058. This was at a premium of 21.8% above the VWAP of $0.0476 on 7 September 2017. 22 notes ( $5.5 million of debt) were exchanged to shares.

April 2018 - Ausgroup announced a proposed rights and placement of $0.035 representing a discount of 25.37% to the VWAP of $0.047 on 28 March 2018. This issuance could potentially raise $62 million in funds, out of which $21 million is allocated to redeeming the outstanding MTN notes.
These proposed rights and placement is conditional upon the MTN noteholder accepting a further restructuring of their debt.

Current NAV per share ( based on Q2 FY2018)= S$0.02
Current market price as of writing = S$0.035
Remaining estimated MTN noteholders loan after all the debt-to-equity conversions(estimated) = $71 million ( out of the original $110 million)

My thoughts about its relation to Hyflux

In the debt-to-equity conversion, VWAP is used as the basis for comparison instead of NAV/share.
In the Hyflux Townhall meeting, a lady actually stayed back after it ended and questioned why rights are not issued. The reply was that the equity is very low or the share price is already so low,  so Hyflux can't do it. I will be looking ( if time permits) at other examples where a company with negative equity can still issue rights. My point is, Hyflux has not done everything it could, so it would be grossly unfair for any perps/prefs to take any losses before rights or placement is undertaken.

There is some form of reciprocity when the notes were restructed. When the MTN holder allowed the maturity extension, they were given an increase in coupon rates and they were paid monthly for the interest. Of course,Hyflux perps/prefs do not have any maturity based on terms, so there is no such thing as maturity extension. The point is Hyflux perps/pref should not only give but also take. For example, any reduction of distribution/dividends to the perps/prefs should be accompanied with a fixed redemption date. However, a fixed redemption date will turn it into a debt ( currently accounted for as equity), which would make the balance sheet look worse. So, the Hyflux perps and prefs have to think of what to take.

DBS sold to the MTN holders these notes. DBS also provides financing to Ausgroup. It leaves one to wonder if there is a conflict of interest since many of these financing is done on a secured basis and are thus ranked first in terms of priority. Risk is reduced for banks since many MTN holders would take the brunt of the losses before the banks. When Hyflux perps and preference shares are underwritten or advised by banks who also finances Hyflux, is this considered right, even if it may be legally right?

Further reading
1) Considerations about Hyflux
2) The fate of Hyflux
3)Will Hyflux recover? The billion dollar question
4) Hyflux-Treatmeat of perpetual share holders- Ezion
5) Hyflux - loans and borrowings - Pacific Radiance
6)A happy ending for retail perpertual securities holders - Tiger Air and Hyflux
7) The Very Curious Case of Sharebuybacks- Hyflux
8)What did the founder/Chairwoman/CEO do to help hyflux throughout the years
9) Moving forwards at the Townhall meetings with Hyflux - Part 1
10) Moving forward at the Townhall meeting with Hyflux - Part 2
11)The Lucky Accredited Investors of Hyflux's Perpetual Securities - Part 3
12) The Peculiar Case of HyfluxShop - Question 12 
13)Uncovering the Real Motivations Behind the HyfluxShop 
14) High Level Staff Movement Indication of Red Flags -Hyflux
15)An industry comparison of Hyflux compared with its peers - Question 15
16)What other Water Companies did that Hyflux didn't - Question 16
17)Why a debt to equity option for retail investors is not right
18) Consolidated Questions For Hyflux Townhall Meeting on 19 and 20 July 2018 - Hyflux
19)Consolidated Questions For Hyflux Townhall Meeting on 19 and 20 July 2018 - Hyflux- continued
20)Informal Steering Committee for the Reorganisation Process - Hyflux

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