Dart Energy seeks permission to put cart before the horse:
DART Energy, the proposed Arrow Energy spinoff, has made a most unusual request of the ASX to allow it to make an institutional placement of up to 15 per cent of its capital before the shares begin trading. That is unusual because the company would have to set an issue price for the placement before the sharemarket has established a share price. Unlike an initial public offering, in which investors are asked to subscribe at a specified issue price, Dart is to be a demerger, which means the market will set the price when the shares debut on the ASX. This commentator has been critical of Arrow for not providing, or obtaining, a valuation of Dart, because its shares are effectively part of the consideration for a takeover from Shell and PetroChina, and Arrow holders should be entitled to know the value of the offer. The demerger booklet says Dart's strategy is to raise new equity "as soon as practicable". It expects to seek about $75 million, partly by way of the institutional placement at the time of listing and partly by way of an additional capital raising, which is likely to involve a pro-rata entitlement offer not earlier than three months after listing....
Tucked down the bottom of the page in very small print was a note that the Arrow board had decided since March 22 that the demerger ratio would be one-for-two. The note did not say when the decision to change the ratio had been made or, more importantly, why it had been made. Presumably it was done to create a higher price for Dart shares. Arrow has 732 million shares on issue but Dart will be a much smaller company and doesn't need that many. Halving the number of shares should roughly double the price. For the purposes of its report, Deloitte notionally allocated a value between 50c and 60c "per Arrow share", but that's on the basis of a one-for-two distribution, which means Deloitte is setting a notional value of between $1 and $1.20 "per Dart share". It would have been much more helpful if Deloitte had made that clear. Deloitte is working on the assumption that Arrow's share price takes into account the change in the entitlement ratio from one-for-one to one-for-two. But this commentator suspects so little made of the change in the ratio that investors may not have realised it has occurred. Arrow's share price has fallen, reflecting uncertainty over the proposed resource super-profits tax and whether Shell-PetroChina may use that to seek to reduce the $4.70 a share cash component. At Arrow's share price of $4.83 investors are valuing the Dart assets at 26c on a one-for-two basis. If the market was still assuming a one-for-one distribution, a Dart share would be only 13c.
AOE Price at posting:
$4.99 Sentiment: Hold Disclosure: Held
