Ann: Decmil Investor Presentation - RCPS, page-9

"They get diluted like heck but at 20c yeah?"

No, not at 2oc.

Read the announcement and understand it properly.

The effective issue price is 2oc less an effective rebate (a fully franked one, to boot) of 7.2c (10.3c including franking credits)

These RCPSs are basically 20c call options, but structured as 3-year bonds with a face value of 20c and an effective 51% nominal yield-to-maturity. As such, they are in-the-money options.

Even if owners of the RCPSs are in the top marginal tax bracket, after accounting for the YTM, the effective exercise price will be around 14.3cps. For those on 37%, 32.5%, 19% and 0% marginal rates, the effective exercise prices are, respectively, 13.5c, 13.1cps, 11.7% and 9.7%.


"And as for dividends, do you really think any current DCG holders were expecting dividends (excluding the new prefs) anytime soon?"

Well, if they didn't think the cash flow generated by the business was going to be distributed to shareholders then they would have expected that it be applied to repairing the balance sheet. Either way, its financial benefit foregone by DCG shareholders.

$9.5m of it, in fact, (which is more than one-third of the current market value of the company) to be transferred from shareholders in DCG to owners of the RCPS.

That you can't see that is scary.


"The call date for the Prefs is 3 years. There are a handful of advantages to the Prefs but are they really that advantageous to command a significant premium or was the 12% (and preferential ranking) simply the minimum necessary to get this away, particularly when you look at the sub-underwriting arrangements"

As I said in an earlier post, it is at the same time carrot and stick. There is a significant transfer of value from the shareholders to the RCPS holders, meaning that the do-nothing scenario -which is what you are contemplating - is not very smart.

As for your 3-year call date reference, for starters its 2.5 years but either way not sure what the relevance of that is. You aren't implying a 3-year capital lock-up, are you?


"Bottom line, you reckon the 20c prefs are great value when you could have purchased ordinary shares around 10c this time last year, correct?"

Any reference to share price history meaningless anchoring bias. This is a fresh investment decision that needs to be made its own merit. Who cares what the share price history has been?

Pointing to a lower share price before to imply lack of appeal of the RCPS offer is no different to suggesting it is attractive because the share price was meaningfully higher six months ago.


For my part I have no wish to commit any further capital to the sector so it's purely a matter of whether I decide to rotate any further SRG into DCG (or not).

But that you can't see the appeal of these RCPSs is a matter for you; it's your money.
Besides, concern about sectoral exposure sounds a bit clueless to me. You could simply sell your DCG shares to fund the purchase of the RCPSs in the event of "not wanting to commit further capital to the sector."

But like I said, the underwriters to the offer will love seeing shareholders such as yourself failing to see the appeal of the RCPS.

The only time it would make sense for a shareholder to not take up the RCPS offer is if he/she did not think the company was worth more than 20c. (But if that was the case, then he/she would surely have sold when the share price got above 25c).

Should these RCPSs trade at face value after 24 July, I'll be hoovering them up.

If they lance the loss-making boils, which it looks like they are doing (see chart below) the company is incredibly cheap, and I've been waiting for a recap event before buying. I thought I would be buying the head stock, but now there is a derivative security which might present an even better entry.