MickeyD
RIP
Johannesburg - Shareholders are in revolt over Lonmin’s stunning share issue – with a discount of 94% on its share price – which could affect the company’s survival if shareholders vote against it on Thursday.
A fund manager with shares in the wavering platinum producer said: “Long-term shareholders who stood by the company during difficult times are being kicked in the teeth.”
The share price has nose-dived by 45% since the huge discount was announced on Monday. To City Press’ knowledge, South Africa and London, where Lonmin has its primary listing, have never seen such a big discount granted in a share issue. If approved, it would mean a return of $407 million (R5.8 billion) to keep the company going. The drop in the share price reduced Lonmin’s market value to about R1.3 billion.
An experienced analyst who did not want to be named said: “Chances are good the share price will be about R1 when the shareholders’ meeting is held on Thursday. That’s how fast people are selling shares.”
It means investors will have to buy 46 new shares for every one they already hold, and these would have to be purchased at 21.4c per share just to retain their current stake in percentage terms. That’s a discount of 94% on the share price of R3.74 per share before the share issue was announced.
Shareholders who do not buy the new shares will see their existing shareholding diluted so much their shares will in effect be worthless.
If someone buys a share for R2 today, he or she will still have to pay R10 for the new shares. Thus, buying one share now will actually translate into buying 47 shares for R12, or 25.5c per share.
“That’s why the price is falling and why the existing shareholders are taking what they can get and leaving,” said the fund manager.
He said it was mainly South African shareholders who were selling, while British hedge funds were snapping up the shares. Before the share issue, about 35% of Lonmin’s shares were held in South Africa.
The three banks underwriting the rights issue – HSBC, JP Morgan Cazenove and Standard Bank – will get a commission of 10%, or R580 million, of the proceeds of the share issue. This is one of the reasons shareholders are bitter.
Three months ago, when Implats raised R4 billion to complete its development projects in a similar share issue, the banks earned commission of just 2.5%, or R100 million.
René Hochreiter, an analyst at Noah Capital Markets and one of the country’s most skilled mining analysts, said: “The interests of shareholders are being trampled on for the sake of the banks. That’s what it is all about. Besides, the PIC [Public Investment Corporation, which owns about 7% of the company] is giving Lonmin a good chance to get the share issue approved.”
Lonmin must, by May and June next year, repay loans totalling $560 million – money it does not have. Shareholders were warned that Lonmin would have to stop its mining activities if the share issue was not approved, but shareholders thought that was nonsense.
One of the analysts said: “Lonmin can definitely roll over its debt. Otherwise, it can go into business rescue, which will protect it from creditors. In business rescue, it can restructure, sell some assets and even create partnerships that bring in money. For example, there is great synergy between Lonmin and Amplats’ Rustenburg mines that will now be taken over by Sibanye.”
The share issue could mean Lonmin will receive additional funding of $370 million. But that would have to be approved by 75% of shareholders on Thursday. The PIC, which administers public servants’ pension funds, has invested R1.5 billion in Lonmin. It owns 7% of the company and earlier said it was committed to buying its full entitlement. This would cost another R404.4 million, but it also undertook to underwrite a portion of the issue not underwritten by other shareholders.
Lonmin and the PIC expected the share price to rise after the announcement. But the sharp decline dampened any enthusiasm for the share issue.
Jan de Lange
http://www.fin24.com/Companies/Mining/lonmin-faces-a-shareholder-revolt-20151113
A fund manager with shares in the wavering platinum producer said: “Long-term shareholders who stood by the company during difficult times are being kicked in the teeth.”
The share price has nose-dived by 45% since the huge discount was announced on Monday. To City Press’ knowledge, South Africa and London, where Lonmin has its primary listing, have never seen such a big discount granted in a share issue. If approved, it would mean a return of $407 million (R5.8 billion) to keep the company going. The drop in the share price reduced Lonmin’s market value to about R1.3 billion.
An experienced analyst who did not want to be named said: “Chances are good the share price will be about R1 when the shareholders’ meeting is held on Thursday. That’s how fast people are selling shares.”
It means investors will have to buy 46 new shares for every one they already hold, and these would have to be purchased at 21.4c per share just to retain their current stake in percentage terms. That’s a discount of 94% on the share price of R3.74 per share before the share issue was announced.
Shareholders who do not buy the new shares will see their existing shareholding diluted so much their shares will in effect be worthless.
If someone buys a share for R2 today, he or she will still have to pay R10 for the new shares. Thus, buying one share now will actually translate into buying 47 shares for R12, or 25.5c per share.
“That’s why the price is falling and why the existing shareholders are taking what they can get and leaving,” said the fund manager.
He said it was mainly South African shareholders who were selling, while British hedge funds were snapping up the shares. Before the share issue, about 35% of Lonmin’s shares were held in South Africa.
The three banks underwriting the rights issue – HSBC, JP Morgan Cazenove and Standard Bank – will get a commission of 10%, or R580 million, of the proceeds of the share issue. This is one of the reasons shareholders are bitter.
Three months ago, when Implats raised R4 billion to complete its development projects in a similar share issue, the banks earned commission of just 2.5%, or R100 million.
René Hochreiter, an analyst at Noah Capital Markets and one of the country’s most skilled mining analysts, said: “The interests of shareholders are being trampled on for the sake of the banks. That’s what it is all about. Besides, the PIC [Public Investment Corporation, which owns about 7% of the company] is giving Lonmin a good chance to get the share issue approved.”
Lonmin must, by May and June next year, repay loans totalling $560 million – money it does not have. Shareholders were warned that Lonmin would have to stop its mining activities if the share issue was not approved, but shareholders thought that was nonsense.
One of the analysts said: “Lonmin can definitely roll over its debt. Otherwise, it can go into business rescue, which will protect it from creditors. In business rescue, it can restructure, sell some assets and even create partnerships that bring in money. For example, there is great synergy between Lonmin and Amplats’ Rustenburg mines that will now be taken over by Sibanye.”
The share issue could mean Lonmin will receive additional funding of $370 million. But that would have to be approved by 75% of shareholders on Thursday. The PIC, which administers public servants’ pension funds, has invested R1.5 billion in Lonmin. It owns 7% of the company and earlier said it was committed to buying its full entitlement. This would cost another R404.4 million, but it also undertook to underwrite a portion of the issue not underwritten by other shareholders.
Lonmin and the PIC expected the share price to rise after the announcement. But the sharp decline dampened any enthusiasm for the share issue.
Jan de Lange
http://www.fin24.com/Companies/Mining/lonmin-faces-a-shareholder-revolt-20151113
