It is quite clear that the terms of the hybrid will dtermine if cnp takes off or languish around the current price.
- if hybrid converts at the face value at maturity based on the share price at that time then we are sweet - likely to be less dilution
- if converts based on 13 cents per share (which I suspect is the case) then it is not good. However the saving grace is that assuming it is a fixed maturity of 7 years and conversion is based on the shareholders vote in 7 years time then I think it will be okay for holders.
Why? 7 years is a long time. Enough time to:
-sell and pay down debt
- once sp improves seek capital raising to reduce debt at market price (reduce dilution) and pay off note holders
- dilution will not happen for at least 7 years (matuirty of the notes)
- no dividends and interest capitalisation helps cash flow and impove balance sheet and reduce debt
If share price has recovered in 7 years time:
- shareholders will not approve the conversion
- instead placements or capital raising will be used to pay out the note
- bank gets $$ back and little dilution
If share price is crap and no dent made into the debt:
- if shareholders does not approve then adminstratiom
- but shareholders will approve because it gives them a lifeline
In short I think the 7 years maturity and shareholders vote at that time is a good protective mechanism. In essence it gives us plenty of time. No dilution for 7 years. I personally do not think the dilution will take place.
Once centro starts announcing asset revaluations upwards and increases returns on the assets (albeit no dividends) sp will improve and these dilution issues will be forgotten.
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