Convertible Notes reset price Dec 2015

This is what the laborious volumes of information in last night’s announcement regarding the Convertible Note reset boils down to.

The principal outstanding on the Convertible Notes is US$137,475,000. The removal of the existing right of redemption (which is capable of being exercised by Noteholders on 10 April 2016 and would require the Company to repay 100% of the principal outstanding in cash), will be removed. This means that the Note Holders who wish to redeem their cash, as opposed to shares upon conversion of the Notes, will need to wait for the original Due Date in 2018 (this also allows the Company to do some fancy accounting and shift the Notes from a current liability to a non-current liability, making the balance sheet look more appealing). Those not wishing to wait until 2018 for a cash redemption will lose the 7% (really 9%) bi-annual coupon as the amendment, if passed, will reduce this to 0% backdated to October 2015 (meaning the Company won’t be required to capitalise the last interest payment). The Note Holders have negotiated a lower stock settlement amount (Conversion Price) to compensate for the loss of the coupon. The new Conversion Price will be the higher of S$0.11772 or an amount which is equal to 90% of the weighted average price for all trades in respect of the Company’s Shares completed on the SGX-ST on 21 December 2015.

The Conversion Price will be S$0.12105. We know, because the Placement Shares [the S$2,905,200.00 raised through an institutional share placement and also explained in this announcement] represents the price on 21 December 2015 once a 10% discount to the volume weighted average price of S$0.1345 for trades done on the Shares on the SGX-ST has been applied. This is the higher figure of the two options for the conversion reset, so the new Conversion Price will be S$0.12, and the fx rate is changed to a fixed US$1.00:S$1.40812.

So, here’s the math if all the Notes were to be converted after the amendments pass:

137,475,000(USD) X 1.40812(fixed fx rate) = 193,581,297 (USD to SGD)

193,581,297(Notes in SGD) / 0.12105 (conversion price) = 1,599,184,609 (Number of conversion shares)

There’s currently 615,966,776 shares on issue. If all the Notes are converted there will be 2,215,151,385 on issue (that’s 2.2 billion).

The crux is this, on the reset date, and if the amendments are passed, the Note Holders will have the option to own (or sell the right to own) 72.7% (ish) of the Company - an overwhelming majority. And existing shareholders would face the possibility of being diluted by a factor of nearly 4.

You can make your own determination on what all this means for you.