the erg saga continues - what a surprise, page-16

re: reality check..a lesson for all
Dear Ripsnorter

My response to Pierpont (e-mailed to him) and to you.

ERG/NRMA Story - AFR 14/03/03

Dear Mr Sykes

In your article in the above publication, you state that you didn't see how the proposed conversion of the ERG Convertible Notes (ergg) to shares at 15c was likely to get approved by noteholders given that the shares were trading around 9c.
What you fail to realise and obviously didn't research, was that the conversion was based on the notes being valued at $13.50 while they were in fact trading around $5.50-$6.00.
A simple calculation (or reference to ERG announcements) would make you realise this conversion basically is at the rate of 1 note to 90 shares ($13.50 divided by 15c = 90). A further calculation would reveal that if you were to purchase the notes at $5.50 and the conversion goes ahead, then you would effectively be getting the shares at 6.1c ($5.50 divided by 90) while they are trading at 9-10c on market. As such, the conversion is alot more appealing to noteholders than you make out.
The notes were trading at around $4.40 prior to the announcement of the proposed conversion so the market believes it is beneficial to noteholders.
In addition the major noteholders have already given their in principle support to the conversion and will be voting in favour of it.
Ernst & Young have also given the conversion it's support as being in the interests of noteholders.
I in fact sold my shares in ERG and bought the notes (errg) instead as they were better value either way (conversion or no conversion).
Mr Robert Gee whom you quoted in your article has also put out a report for his firm (Paterson Ord Minnet) indicating that the notes were better value given the likely conversion.

The benefits to shareholders of the conversion is that the $250M debt to noteholders is removed as is the $18m yearly interest bill to them. The resulting balance sheet will be far healthier.

I agree that management of ERG have alot to answer for in terms of their management of the company and should be rightly held accountable. Please however ensure that your analysis contains information that is factual and relevant.

Thank you