You may have seen recent some media articles about some new shareholder agitation around the no-win capital structure at PPX/PXUPA. I have been commenting on this situation for some time now and as noted in my last post on the topic bought some PXUPA in May.
As noted previously, the 'trimmed down' PPX is basically owned by PXUPA shareholders. The face value of the PXUPA is $285m v my balance sheet estimation of $210m. Therefore PPX are basically worthless at the moment. At the time of the last post, I couldn't see why PPX was performing better than PXUPA however that trend has corrected itself (at least for the time being) with PPX falling from 3.6c to 2.6c and PXUPA holding up okay rising from $9.50 to $10.46.
The new main agitator, Blue Pacific Partners, has outlined what I think is a pretty reasonable plan and can be read in full here.
The key proposal is to offer PXUPA shareholders 1,000 PXP shares for every PXUPA. This means PXUPA holders (assuming 100% converted) would collectively own 2.85bn PPX shares. There are 609m original PPX shares bringing the total share count to 3.459bn shares of which 82% would be owned by former PXUPA holders and 18% by the initial PPX shareholders.
What I really like about the proposal is that it delivers a win-win for both PPX and PXUPA holders. Using Blue Pacific's conservative value of $125m (much less than the $210m I noted above), each share is worth 3.6c. So the PXUPA would be worth $36 each and PPX shareholders actually have a genuine value of 3.6c (and not just the pure lottery ticket value they currently have which will sooner or later expire like a decaying option).
As a PXUPA holder, I have zero expectations of every receiving $100. However $36 is a decent hair cut and if it allows the situation to be sorted out I would accept it.
But of course this is all just theory. Management actually have to themselves adopt such a plan, and based on the track record we can't hold our breath. However my reason for buying a few months ago was the Board stepping in and shedding everything non-ANZ. This has been done, so let's see now if they step up and sort out the capital structure.
Kristian
Disclosure: own PXUPA
Hi Kristian,
ReplyDeleteI don't know if I would like to hold any PPX paper given their trading record, debt/equity of 5+ times and negative income/debt coverage. Your a brave man holding on to that time bomb, time to pass the parcel methinks!
Hi Marcus, the debt is largely the PXUPA. And with the business now stripped down to ANZA, it should now be profitable. As noted, a deal will have to be done with PXUPA holders sooner or later if the situation is ever going to get sorted out, meaning the 'debt' will have to be addressed.
ReplyDeleteHi Kristian,
ReplyDeleteLooking at the PPX 2015 HY report it says in Note 17 that "the PSPS (PXUPA) are recorded in equity". Can they be classified as equity and debt at the same time?
Yep, they are on the books as equity, however they have both equity and debt type features. The accounting treatment depends on the conditions of each specific hybrid. For practical purposes, I'm treating them like debt as the ordinary shareholders can't get paid until PXUPA holders get paid. Note PPX just reported.
ReplyDelete