Convertible Notes reset price Dec 2015, page-7

Their UCG ip and the Ark.

I think investors need to start with the basic premise that the Company cannot survive holding their current debts (I don’t think anyone’s disagreeing with that at this point). Then ask if the long term future of the Company is as a minor oilier? Which I doubt many people think it is (and if not then that leads to the obvious point that at some stage the oil division will be sold or otherwise liquidated - this has always been the plan). And then ask how can the Company create capital without the income from the oil division? Which will lead most people to M&A or privatisation (requiring the acquiring company to have other means of capital).

My personal opinion after having worked through all these points is that eventually the Company will be in the same position one way or the other. The oil assets will not be a part of the Group. The USA debts will be gone (paid out from US asset sales or bankruptcy). The Convertible Note Holders will hold rights to the majority of the Company. They will sell their rights to a private entity (the Notes will be sold as a block, because this can be achieved without manipulating the stock price, although it will raise the price of the Notes themselves which will constitute as the Note Holders profit). That private entity will strike the conversion privilege and own 80% of the Companies stock. This will trigger a compulsory takeover bid. And finally, retail shareholders will bought out at a price no higher than the highest price of stock sold on the SGX in the preceding six months trade (as per the SGX listing rules, unless they've changed).

That’s how I see BFAM and Taconic achieving a return of their capital, and a return on it. But it requires that someone want's Linc's UCG ip or the ARK. If the Notes are sold in a block for S$0.13 (which would represent the equivalent of the forgone 7% coupon) the purchase price of the rights to control the Company would be S$211m (1.623b conversion shares X 0.13 SGD). You can see how someone looking to buy Linc out might see this as a cheep way to acquire the Company when their alternative would be to slurp up 50% of the shares outstanding which at current market rates (which would obviously rise in this event) would be S$42m (ish) PLUS the bonds at a face value of $S197m to prevent them striking.

The bonds are a cheaper way to own the Company than the stock!

This post will not be well received. So, who’s got another idea?