"They told us so"

Peter Bond was warned Linc deals were expensive
THE AUSTRALIANAPRIL 16, 2016 12:00AM

Kylar Loussikian
Journalist
Sydney


Linc Energy’s former chief executive, Peter Bond, was warned six years ago a string of financing deals struck by the embattled resources firm appeared unnecessarily expensive and would destroy shareholder wealth.
The unconventional gas firm, once valued at $2 billion, yesterday called in administrators after hopes for a restructuring deal tied to additional capital faded.
In a statement, Singapore Exchange-listed Linc said PPB Advisory had been appointed to work with management on a potential restructure of the firm, which employs more than 350 people across Australia and around the world.
It is understood the company, which is attempting to commercialise underground coal gasification technology on a large scale, was in negotiation with two hedge funds for an immediate injection of working capital and assistance in untangling itself from significant liabilities attached to convertible notes.
But those funds — one in Hong Kong, the other based in the US — were concerned about the Queensland government’s ongoing legal pursuit of Linc for alleged contamination of the environment surrounding the company’s operations on the Darling Downs.
The company allegedly exposed workers to dangerous gases at the experimental plant near Chinchilla, west of Brisbane, raising questions about the safety of the assets and technology.
The state government appears unlikely to back down.
Queensland Environment Minister Steven Miles said he had met landholders across the Hopeland and Chinchilla district, “and indeed across Queensland, who are worried about how contaminated lands will ever be cleaned up, and want to see more done to prevent it happening in the first place”.
Linc also has operations in the US and in Uzbekistan, where it operates one of the world’s only commercial UCG plants, a Khrushchev-era former Soviet facility in the town of Angren.
Stephen Longley, a PPB partner, said the company would continue to operate as usual while it undertook a review of assets and worked towards a restructure.
Linc’s oil business on the US Atlantic seaboard is operationally profitable but weighed down by financing costs, while explorations are continuing in Alaska and the Arckaringa Basin in South Australia.
The company has about $100m in debt tied up in convertible notes held by offshore funds, largely in Hong Kong, with several hundred million dollars more secured by its US assets. However, it’s market valuation sits at just $S14.3m ($13.9m).
The cash-strapped firm issued millions of dollars of new shares to two hedge funds — BFAM and Taconic — in March, after shareholders voted to reduce the take-up price on $200m in convertible notes issued in 2013.
Those notes would have been due at the end of this month. But with $5m in cash at the bank in December, it was unlikely Linc would have been able to make that payment.
In a letter sent to Mr Bond and Linc’s board in 2010, and obtained by The Weekend Australian, one of the company’s larger institutional investors warned the firm’s financing arrangements “appeared to be an expensive solution” and represented “an unnecessarily large transfer of funds and a potion of ownership from the current shareholders”.
Those “unorthodox” deals, struck with SpringTree Global Investors and later with the now-defunct BBY, allowed the financiers to swap the short-term funds for securities as the share price fell — at a discount to the current price.
Known as a “death spiral convertible bond”, those funding instruments convert into shares at a deep discount to the price at the time of issuance, resulting in a dilution to the value of outstanding securities.
By booking a profit by converting and selling securities at that lower price, holders of the notes would continue to drive down the value of shares, the letter warned.
Linc declined to comment yesterday, but in a response sent to the earlier letter, said it believed “Springtree is and will continue to behave as a rational investor”.
”By securing this facility, the board has secured the company’s short-term financial position and provided the necessary funding to allow the company to continue to execute its business plan,” said Mr Bond, who did not respond to requests for comment yesterday.
Craig Ricato replaced Mr Bond as chief executive in 2014.
The Australian revealed last month that Mr Bond, who departed as Linc’s chairman late last year, appeared not to have lodged paperwork connected to a change in his significant holding in the company — and that a significant portion of his stake was used as collateral for loans made by Equities First Holdings, which was free to onsell those shares.
Mr Bond used a third of his shares at the time of the company’s listing in Singapore as collateral for a loan with EFH, according to filings lodged with the bourse. Another portion of Mr Bond’s shares, owned through Newtron, were lent to Credit Suisse Equities, according to earlier disclosures.
EFH Australia managing director Mitchell Hopwood yesterday declined to comment on “private and confidential client matters”.
The Monetary Authority of Singapore, which sources said had reached out to Mr Bond and requested he clarify the situation, said it could not comment on dealings with individual parties.