Ann: Syrah to issue Series 6 Convertible Note to AustralianSuper, page-13

Australian Super

This seems to be an opportune time to raise the third item in the series of things I don’t understand about Syrah and the graphite market. What is Australian Super’s end game? I ask this question from two points of interest : number one is that it is partially my retirement funds that Australian Super is using for their investment and number two is regarding the possible outcome for Syrah.

AusSuper is into Syrah up to their armpits and still floating, but from my limited understanding of them it would not be their intention to remain involved for the next 50 years, they must have some exit plan in their minds. For the foreseeable future Syrah is completely reliant on them, and at the present time AusSuper are well under water on their shareholdings (current average holding price ~A$2.08) so there is no possible escape but what could eventuate in the future?

Here is the current situation with the Convertible Notes :-

AusSuper have indicated their intention (at the present time) is to convert the Series 1 and Series 3 Notes at some stage. The latest date for Series 1 is 24th October 2024 but what if the share price is still beneath the conversion price at that time, AusSuper may not want to convert and Syrah will certainly not have the funds to redeem. The only possible solution in that case would be to roll over the notes to Series 7 in an amount of A$85 million.

As a side observation the total interest bill on the notes over nine years is a quite sizeable A$149 million but because all the interest and charges are being capitalised this amount will never darken the profit and loss account. This is why accounting is considered to be an art rather than a science, just like Picasso accountants can paint any version of reality they choose and be admired for their creativity.

Taking the positive view that the share price will increase substantially in coming years at some stage between 12th November 2025 and 12th May 2028 (but probably the latter date given that the nice little interest earner will obviously be more than any possible dividends on the converted shares) AusSuper will convert and then control 42% of the shareholding at an average purchase price of approximately A$1.52 per share. So what could be the possible exit plans after 2028. Given the scenario above they will probably have at least two directors on the board by then and have a substantial voice in the direction the company takes.

• The company could be an attractive takeover proposition although I suspect the USDFC have some clause in their loan agreement and the DOE in their grant agreement that makes this difficult for any company not meeting their approval. Also the AusSuper convertible note agreement probably makes it hard for anyone not meeting their requirements while the notes remain in play.
• They could continue slowly selling down their holdings. Between 11th March 2022 and 9th February 2023 they were quietly reducing their holdings in a relatively minor way.
• Other than those options it seems they are trapped, they got in during the good times, never suspecting that the present situation in the graphite market could occur. For the sake of my future super balance I hope it all finally works out well.
• Will they continue to bail out Syrah in the future if required? They seem to be in so deep now that they will have no option but to continue until the good times finally roll.

Disclaimer : I have been known to misread figures, misconstrue basic facts and misunderstand accounting standards so no credence whatsoever should be placed on anything I say in this forum.