“Claims in QGC’s statement by managing director Richard Cottee that SGL’s proposed $50 million refinancing was ‘a package to facilitate change of control without a control premium being paid to investors’ are incorrect,” Sydney Gas said in a statement this morning.
“A further assertion that SGL is ‘facing a funding crisis’ is a perplexing and confused response to an announcement of a proposal intended to provide funding.”
The recapitalisation plan announced by Sydney Gas last Friday contains pro-rata offers giving all shareholders and noteholders the choice to participate, the company said.
“Underwriting arrangements are the standard approach to obtain ‘back-stop’ certainty. The proposed issue of $15.6 million in new convertible notes to Babcock & Brown could at most convert at a later date into less than 10% of SGL,” the company said.
“The notes can’t be converted while the QGC offer is open. The recapitalisation plan does not facilitate a change of control under any reasonable viewpoint.”
While the underwriter, Babcock & Brown Securities, has in place sub-underwriting commitments, Sydney Gas said it expects the rights issue to be well-supported and any shortfall to be minimal.
The shares are being offered at a 15% discount to the current market price. Sydney Gas is counting on this and the Babcock & Brown brand to draw a strong response. Also, under an over-subscription faciltiy, any shortfall will be allocated towards satisying over-subsciprtions by existing shareholders, then towards the public. Only then will the remainder go to the underwriter.
In addition, Babcock & Brown has already received commitments from other parties to subscribe for more than 25% of the issue, according to Sydney Gas.
But Sydney Gas has not identified who these parties are, nor whether they would be able to apply for over-subsciptions.
The former Sydney Gas board was concerned that a bloc of shareholders were trying to seize control of the company. After some shareholdings suddenly shifted from one nominee holding to another late last year, the former board attempted to trace the beneficial owners of shares held by nominees.
While the current recapitilisation plan has some unusual features, the current board was satisfied it was in the company’s best interests, according to executive director Stephen Kwik.
The plan of up to $50 million would enable the company to fund the redemption of its June convertible notes for about $20 million, replenish its cash reserves following repayment today of the April convertible notes of roughly $10 million, and provide up to a further $20 million for exploration and development of its Sydney Basin CSM leases.
“Together with cash on hand and future sales revenue, SGL directors believe this level of capital provides appropriate strength and financial stability,” Kwik said.
“Our proposed funding package is for $50 million, whereas QGC’s takeover offer includes a new convertible notes proposal that raises only $30 million.”
Cottee’s claims about the level of Sydney Gas’ funding made no sense, given that Queensland Gas has proposed an even lower funding offer. This only served to highlight the strength of Sydney Gas’ recapitalisation plan, according to Kwik.
He also said Cottee’s claim on Friday that the Sydney Gas rights issue’s pricing was nearly 20% above the volume weighted average price prior to Queensland Gas’ bid and was designed to be taken up by underwriters rather than Sydney Gas shareholders, was incorrect and misleading.
“The pricing of the rights issues is regarded as being at an appropriate level reflecting matters including the anticipated benefits of the recapitalisation plan, and is at a discount to recent SGL trading,” Kwik said.
“QGC’s reference to market trading nearly three months ago that did not and could not reflect the anticipated benefits of the recapitalisation plan lack credibility and should be ignored.”
