Are Capri actually playing KDR to get KDR assets? Consider the...

Are Capri actually playing KDR to get KDR assets?

Consider the following from KDR’s announcement from 11 November:

• Kidman will immediately acquire 37,925,836 KBL shares held by Capri, representing a stake of 9.7 per cent. The purchase price for these shares is the deferred issue to Capri of 22,249,824 shares in Kidman. The deferred settlement date for the issue of the Kidman shares is 31st March 2015, and is subject to any required shareholder approvals being obtained

• If the Capri loan has been repaid in full by KBL on or before the settlement date, or alternatively at the election of Kidman at any time up to March 30th 2015 the respective share issues will be reversed whereby Kidman will be obliged to re-transfer to Capri the KBL shares acquired from it, or pay cash in respect of any KBL shares that Kidman has disposed of and the deferred issue of Kidman shares to Capri will not proceed.  (bold is my emphasis)

   
Now consider the following as a possible flow of events:

• It has been posted here that KDR is low on cash.  From my quick review – June quarterly estimated cash expenditure for September quarter would be $550k.  September quarterly shows actual expenditure in quarter was $1,302k, $750k more than budget.  Estimated cashflow for December quarter shown as $400k (I would expect higher with the current corporate action).  Total cash at September was $1,638k.  Without any cash injection, there would be little cash left in March and raising funds in this market is not easy.

• KDR sells some of the KBL shares transferred to it to get some cash.  It was posted here and KBL top 20 shareholders on their website shows KDR only holds 31,100,836 as at 17 November – not the 37,925,836 that they acquired from Capri.  Not sure if more sold since or more to be sold.  In regards to the KBL shares, KDR also said in their announcement “and will consider selling this shareholding at the appropriate time”.  It seems to be doing that immediately.

• KDR uses the cash from the sale of the KBL shares to pay management salaries, legal fees, actual exploration expenses, doesn’t matter how if they spend it.

• KBL comes through with the finance and repays the Capri debt

• KDR must then return the KBL shares that were transferred to it or pay cash in respect of any KBL shares that KDR has sold (not sure if this is at the price on the date of transfer to KDR or price sold by KDR).

• If KDR doesn’t have the cash to repay Capri for shares sold (or so little cash left over it would border being insolvent) then Capri ends up in a very strong position with respect to KDR and Capri may end up picking up KDR assets at fire sale price.

• I think we can all agree that there will be nothing left of KBL if it cannot re-finance.  If Capri thought that KBL wouldn’t be able to re-finance, then why would it be buying more shares in KBL?  See top 20 holders at 17 November 2014 as Capri has purchased 4,755,000 shares in KBL and I think it can continue to purchase shares without disclosing to the market until it hits approx 20M or 5%,  i.e., it can continue to pick up any shares sold by KDR so it doesn’t miss out its share of KBL value after re-finance – and as a bonus Capri could pick up a fire sale prices the KDR assets or a large slice of KDR shares as repayment of amounts owed by KDR to Capri.

In this game of poker, I think Capri has the best cards and is playing its hand to its advantage very well .  KBL has some cards to play and time will tell what they do with them.  But I think KDR in poker terms doesn’t have much to play with but is trying to bluff as best they can.

Only my thoughts and speculation – happy to hear what others think.