"The Company has been informed by the New Senior Lenders that they fully intend to implement a solvent restructure of the Company (‘Restructure’) and to work cooperatively with the Company to enter into binding agreements to reset its debt structure to ensure that the company has a sustainable level of debt and a stable platform for its future operations both in Australia and the UK."
At least it's an update, but leaves a few questions.
1. SGH has been trading EBIT negative since July 2015. So no level of debt is sustainable based on recent performance. Business performance declined in the FY2017 1st half, with sharp revenue reductions. On the basis of comments at the AGM, 2nd Q was worse than the 1st Q, so the trend is likely still down. Normal assumption would be that the only path to sustainability would involve a capital (cash) injection plus a slash and burn operation to bring expenses back in line with revenue. If this is going on at the same time as restructure negotiations, it's hard not to see an adverse effect on both staff and clients.
2. A "binding agreement" seems a long way away. Scheme of arrangement or debt for equity would need SH approval, so maybe they mean "binding agreements subject to SH and regulator / court approval etc". Leaves open what is to happen in the interim if they are running low on cash.
SGH Price at posting:
8.9¢ Sentiment: None Disclosure: Not Held
