PIC Share sales and Discussion of Funders!
As shareholders have a large say in what happens in the upcoming EGM, it’s not something that we should take lightly.
The finance piece will shape the path for RES going forward, so we should begin to have the conversation.
If we all have a look at this, I’m sure between us, we will get close to the right story...I will attempt to be as transparent as possible. I source my information majorly from the minds of 50 other shareholders. So, please do not mistake this as accurate or factual.
To begin, let’s assume our three lenders are Noble, PIC, and IDC. We know for certain it’s IDC and Noble, and the PIC is simply the logical conclusion given time delays and other facts were in line with their internal conflicts.
Let’s look at some interesting recent observations. There are many reasons why PIC would sell their shares. The pessimism and ‘end of the world’ stories are often the ‘fears of our own doing’. I can be wrong, but this reason outlined below, does offer a logical explanation.
PIC has disclosed they have sold down to 86,081,510 (14.086%). I believe this is inaccurate as there was further selling on the JSE post this announcement date.
You can read this information from the following links (thanks Goggledog);
That is publicly available JSE trade data.
https://www.sharenet.co.za/v3/quickshare.php?scode=RSG
and
https://www.sharenet.co.za/v3/share_performance.php?scode=RSG
I would like to draw the first obvious conclusion, if PIC is the funder, they must believe in our project. It follows that they would not decrease their holdings or sell shares.
It also follows that we as shareholders would not want them to increase their voting power, if they are given more shares via an equity stake or other for providing the funding.
So, with the negotiations in terms and conditions, the board would have to deal with these two conflicting items.
So, my conclusion, is that the PIC has sold down their shares in this time of liquidity, as they are preparing to receive an equity stake of a similar amount in return for providing the funding.
So How Many Shares sold and Why?
Counting the shares to date: PIC is currently sitting on circa 85.13M shares (disclosed 86.08M to the ASX less share sales on the JSE since their recent disclosure of 950,000.
I have made the following assumption: on the provision this was PIC selling on the JSE (you can also see in the links above that the last two months on the JSE suggest circa 29M have been sold by PIC as there is virtually no one else selling in the past three years- all selling has been on the ASX).
What I am saying is there could be a lag, between what PIC are disclosing and what is happening. The disclosure rules from ASIC suggests they would inform us, if there is an intention to have the shares RE-issued.
For now, let’s assume we work with the ASX disclosed and the recent 950,000 sold on the JSE. This means the PIC have reduced their holdings by an estimated 4.85% currently, or to their current ownership of 14.64% or 85,131,510M shares. It also follows that these shares would be returned to the PIC in time (via an equity stake). This value suggests an estimated 5% equity stake will be received once they provide the funding.
If, 95% = 581.4M shares, then the new shares ResGen would have on offer would therefore be; 611,979,303. (An estimated 30,598,965 share placement to PIC would be expected).
It follows; 115,730,475 (85,131,510 existing shares + 30,598,965 future shares) shares for PIC of the total 611,979,303 shares.
Therefore post equity entitlement, they have reduced their holding to 18.91% but increased their total shares by an estimate 2,420,670.
Notably they would have received the estimate $3.6M for sale of their shares in recent weeks as well.
Why does this make Logical Sense?
PIC will end with an estimate of 2.4M more shares i.e. 115.7M (this also will depend on whether they wish to sell more down). That’s the million dollar question. But whatever the case I don’t believe they will go below their original 113.2M shares they have had for the past 6 years.
Importantly for us shareholders. On current numbers the more they sell, the less their voting power after the EGM. As it stands this looks to have decreased their voting power to 18.91% (after they receive the 5% equity stake). This is a nominal change, but still confirms to me there is no present or apparent voting block with any of the major shareholders. Otherwise, the PIC would have maintained their 19.49% holding.
Based on these numbers we could potentially see more shares on the ASX in the coming days. If they decrease their holdings back to the original 113.2M (post the equity stake of 5%), and further reduce their voting power to 18.49%, then expect another 2.5M shares to be sold on the JSE.
Does this mean the other Funders will receive 5% equity stake?
No, well, not from a shareholder perspective. As that would increase voting power, and to be frank, that would not be in our best interest.
Several reasons I don’t believe the other two funders will receive this 5% stake include;
1. Shareholders would not agree to allow an increased voting block for any of the top three shareholders. Hence my view on the restriction to PIC, and the subsequent selldown in recent weeks.
2. From the selling or regulatory restrictions, it is apparent ResGen board or other looks to have capped PIC’s shareholding to no more than what they had prior to the funding deal, hence 19.49% ceiling (currently it’s looking like less than this figure as they look to be trending back to the same amount of shares as when they originally started). I would assume the board would understand that shareholders would not be comfortable with the idea of anyone increasing their voting power.
3. I am guessing the PIC is Providing the majority of the funding based on the recent events.
4. I predict IDC/Noble’s benefit will be built into the interest rates or like.
Let’s Review the three Funders Individually.
1. Noble - We as shareholders don’t have to accept above and beyond commercial terms. Their benefit is built into the coal offtake agreement. I would expect no equity position to be given to Noble. If there is, then that’s not in our best interest. I am happy for someone to convince me otherwise.
2. PIC - Based on the recent sell down of their shares, back to estimate 14.64% (including those not disclosed as yet), it is a logical assumption to expect they would receive an estimate 5% (equity stake with this funding). i.e. As a funder they believe in the project.
3. IDC - would be ‘fair and reasonable’ as they are a government backed organisation established to support growth in South Africa. If I am correct with PIC above, I am not convinced that giving IDC 5% equity as per PIC would be in our best interest. This could help with a voting block if an equity stake of 5% was provided.
Why would PIC flood the Market with Shares?
1. There was liquidity, so a great time to sell. They will receive an equal number of shares in return, so had to beat the RES announcement.
2. If they advertised this sale during a RES announcement, we would have held off and bought their shares for 6c rather than their current 12c.
3. They have fair idea the funding is going ahead, hence the confidence to sell.
Does this raise dilution issues?
We only have 581.4M on offer, our industry counterparts often have 1Billion shares on offer. So, dilution is minimal.
SUMMARY
I will assume our shares on offer would increase to 611.9M, and the terms will be ‘fair and reasonable’.
I don’t believe any other funders would receive an equity stake as it could potentially create a voting block.
In recent weeks, our share price has decreased due to the above urgent sales by PIC. That has been proven by sales of 29M on the JSE, and an increased volume of shares on the ASX. This also confirms the selling is potentially complete but will also depend on how much further PIC wish to dilute themselves.
There will be many other instances of buys and sells, ultimately, we won’t understand or need to understand them all, but as this is the major funder, it was important to understand this sale.
Although this is not confirmed, this conclusion makes logical sense given the exact sales amounts on the JSE and ASX,
The great position we are in as a company would mean a funder would not sell their shares. A funder that has confidence in the project would not sell down shares unless they were sure they would be returned to them in time.
I welcome any and and all thoughts to support or vary my views, as in its current form, it’s just a conversation starter...it’s not concrete.
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