My take on SGH is that the lenders is a bit reluctant to do DFE until they are sure it generates a better return than debt. Reason being, if they force DFE and get rejected by SH, they really can's sell off SGH's assets like a mining company or a energy company, they still need people to run it and turn the receivables into cash. It gets messy in my view that the revenues will diminish if they go down that path, but the fixed cost of salary and office expenses will remain. Hence I am guessing, that this is why they are trying to fix the problem before they can confidently propose a DFE (probably why they didn't force DFE but capitalised another $78m debt in the first place).
... But I might be unpleasantly surprised by Anchorage.[/QUOTE]
Hi Jack,
Thanks for your post.
Just to play out your scenario a bit further... Atm it is generally well understood that the business is cash flow negative and revenues on trend have been falling. So if the new lenders were to put a DFE offer to shareholders that got rejected, I don't agree that they are hamstrung in realising a return by having no fixed assets to sell. In your scenario, you suggest revenue would diminish whilst operating costs would remain. I put it to you how is that any different to the current situation? This is why interest was recently capitalised and a new working capital facility extended - because current revenue is not covering costs and it needs more capital to fix the business.
If they forced the company into VA, should shareholders reject a DFE, why couldn't they just keep on current staff to work through the remaining files to realise the receivables? Would staff say no to remaining employed a bit longer? And at that point what do they care about diminishing revenues if they don't intend for the business to be a going concern.
SGH Price at posting:
9.5¢ Sentiment: Sell Disclosure: Not Held
