Great Southern Death Rattle
Great Southern Limited’s announcement today highlights the desperation setting in. Selling their book of debt for $0.38 on the dollar and deciding not to pay TREES coupons. Look out shareholders a massive dilution your way comes.
Under the terms of the Company’s Transferable Reset Exchangeable Securities (“TREES”) coupons are payable as follows:1 TREES2 (ASX Code: GTPGA): pay a preferential non-cumulative coupon semi-annually at the discretion of the directors of the company. TREES2 coupons are non-cumulative and note holders have no claim in respect of any coupon entitlement; and
2 TREES3 (ASX Code: GTPGB) pay a preferential and cumulative coupon semi-annually. TREES3 coupons are non discretionary, however are cumulative and if a coupon entitlement is not paid then any unpaid entitlement is automatically deferred with a 2% pa penalty above the coupon rate.
The Company’s directors have determined in accordance with the terms of the TREES securities, that it would be prudent to exercise the Company’s rights with respect to the payment of coupons at this time and not pay a 30 April coupon in respect of TREES2, and to defer the 30 April coupon payment in respect of TREES3. If the coupons remain unpaid by 11 June 2009, being 30 business days after the Coupon Payment Date, a Trigger Event would occur, giving holders specified conversion rights as set out in the terms of the TREES securities which are available on the Company’s website. In addition, the Company cannot pay any dividends to ordinary shareholders whilst any coupon payments to TREES holders remain outstanding.
via ASX Announcement
TREES2
From the prospectus:
For the period to the First Reset Date generally each of the TREES2 that are to be converted will Convert into Ordinary Shares at a 5% discount to the average of the VWAP of Ordinary Shares traded on the ASX during the 20 Business Days immediately preceding the Exchange Date.
VWAP or Volume Weighted Average Price is the total value of shares traded in a particular stock divided by the total volume of shares traded in that stock.
I’ve setup a spreadsheet to track the VWAP of GTP and have included an example of the calculation (click on Example Tab), though the actual method GTP uses for the calculation may vary.
TREES3
Conversion
As of 30 September 2008 there was $78,970,000 worth of TREES2 and $122,616,000 of TREES3 outstanding debt. At the current share price of $0.14 conversion by holders would result in 1.44billion shares being issued. For those playing along at home there are currently 0.64 billion share on issue. We need a new adjective to describe that sort of dilution. Any suggestions?
I do not subscribe to the Intelligent Investor, but today’s teaser from their website states:
“The cessation of distributions on TREES2 and TREES3 securities could give us the best possible exit from these miserable mistakes.”
I am not as optimistic as that writer. What will the newly minted owners of all those shares do? Hold for the long term or flood the market in an attempt to get any price they can for their new shares?
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