Just to change the subject for a minute or two, how are shareholders considering voting on Resolutions 7 and 8 on the agenda at the upcoming AGM?
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Resolution 7 : Approval of acquisition of relevant interest in New Shares by AustralianSuper on conversion of the Series 1 and Series 3 Convertible Notes
On 13 March 2024, the Company and AustralianSuper entered into a binding agreement:
(a) to revise the conversion price of the Series 1 and Series 3 Convertible Notes to A$0.6688 per Share; and
(b) for AustralianSuper to convert the Series 1 and Series 3 Convertible Notes into New Shares, conditional on Non-Associated Shareholder approval
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Despite the directors recommendation I have been pondering whether the other institutional investors could possibly be thinking of voting against the resolution.
The KPMG experts report says the deal is “Not Fair but Reasonable” and I would see more emphasis being placed on the first two words of that phrase rather than the last. Giving Australian Super an extra 49.8 million shares over and above the company's legal obligations at the expense of other shareholders might not be seen as being tenable.
Then there is the consequence of the resulting debt forgiveness which is noted in the KPMG report as being :-
“The Series 1 and 3 Notes Conversion has potential negative tax consequences, which include the potential for all of Syrah’s current Australian tax losses to be exhausted under Australian tax debt forgiveness rules depending on the final share price at conversion.”
The share dilution will probably result in a drop in the share price :-
Before Capital Raising : 678,737,781 @ .70c = $475,116,446 MC
After Capital Raising. 856,928,303 @ .55c = $471,310,567 MC
After Con Note Redemption. 1,034,234,354 @ .46c = $475,747,803 MC
The book value of the company (as reported 31st December 2023) will increase from $353.6 m to $475.7m as a result of loans transferred to equity.
I originally thought this plan must be necessary to clear the decks for the upcoming loans from DOE and DFC but this aspect was not canvassed at all by KPMG in their expert report so presumably there is no issue there. Given that, why is there any rush to do the conversion?
KPMG present two possible outcomes from a failure to approve the resolutions but I would submit there are actually five possible outcomes come 28th October.
The two presented by KPMG are :-
A) Australian Super could convert the notes to shares at a rate of $0.9318
B) Syrah could redeem the notes by payment of A$121.8 million
The other three possibilities not considered are :-
C) Australian Super could put the company into liquidation.
D) Australian Super could roll over Series 1 and 3 notes into Series 7
E) If the resolution is passed at the AGM all other shareholders could receive a free 1 for 10 bonus issue to put them on an equal footing with Australian Super’s windfall.
Obviously B) and C) are not going to happen and E) is unlikely so that leaves Australian Super to choose between A) and D). They might not be impressed with either option but the share price could possibly go above $0.9318c by October solving the problem.
Sure, the directors would like to keep Australian Super onside for the long term but shareholders could possibly take a contrary shorter term view.
Anyway, it is going to be an interesting discussion at the AGM, I hope they have representatives there from Australian Super to discuss the matter.
If the resolution does pass it will be an indication of how much influence and control they have on the company, being able to advantage themselves over other shareholders without even being represented on the board. After all they are not the only shareholders to be suffering.
What are the views of the shareholders on this forum?
Disclaimer
I have been a Syrah shareholder in the past and hope to be again in the future, hence my continuing interest in the company. I am not currently a shareholder but I am a member of Australian Super so this resolution passing is actually in my interest. I estimate if the resolution passes my super balance will be better off by approximately $21.36c
(20min delay)