Brief Event-Driven: DHICO (Doosan Heavy) Rights Offer: Conditions & Timetable and more

In this briefing:

1. DHICO (Doosan Heavy) Rights Offer: Conditions & Timetable
2. GrainCorp (GNC AU): Pressure Mounts, Diminishing the Prospects of a Bump to the LTAP Bid
3. Petrus Doubles Down On Ophir Energy
4. BGF Duo Stub Trade: Short Sub / Long Holdco with a Very Short-Term Horizon

1. DHICO (Doosan Heavy) Rights Offer: Conditions & Timetable

• This is a total ₩608.4bil rights offer. This is larger than initially expected. A projected ₩543bil will be raised through common share issuance. The other ₩65bil will be raised in the form of RCPS. This is a combined 72.56% capital increase with a 42.05% share dilution.
• 80% will be allocated to the stockholders. Per share allocation for the stockholders is 0.58. Mar 27 is the ex-rights day for both Common and RCPS. Subscription rights will be listed and trade on Apr 19~25 only for Common. May 2 is for final pricing. New Common shares will be listed on May 29.
• Offering size is much larger than initially expected. In the short-term, DHICO shares will likely take a harsh beating. At this point, we’d better stay away from it for now.

2. GrainCorp (GNC AU): Pressure Mounts, Diminishing the Prospects of a Bump to the LTAP Bid

Frustration on the slow progress of the LTAP bid came to a head at the recent AGM, where shareholders registered what appeared to be protest votes aimed at Graincorp Ltd A (GNC AU)’s director elections and remuneration. The Board has currently three options to unlock shareholder value – achieve a binding LTAP bid, commence the portfolio review driven sale process or adopt the Tanarra Capital proposal.

3. Petrus Doubles Down On Ophir Energy

Petrus Advisors (3.5% shareholder) has dialled up the pressure on its opposition to Medco Energi Internasional T (MEDC IJ)‘s £0.55/share offer for Ophir Energy (OPHR LN), specifically calling into question Bill Schrader (Ophir’s Chairman) “unprofessionalism”.

Petrus (again) highlighted the premature termination of the Fortuna licence. Ophir announced a $300mn non-cash impairment in early January following the denial of the license extension for the Fortuna project in Equatorial Guinea (EG), having previously written down $310mn back in September. Ophir had invested ~US$700mn in the licence. Petrus accused Schrader of dropping the ball after the departure of CEO Nick Cooper in April 2018, who held key businesses relationships in EQ.

In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco, with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis.

Furthermore, Petrus reckons no marketing effort has been for the Mexican license and the 20% ownership in Blocks 1 & 2 in Tanzania, which together have low-end value of $60mn (£0.065/share).  Petrus added that Schrader had not actively solicited and considered alternative offers from other buyers; together with stonewalling demands for Ophir to return capital to shareholders.

Petrus signed off its latest salvo with a cordial “This is your final reminder to preserve and build value. We reserve all our legal rights in this situation“.

Further stirring the pot is alternative hedge fund Sand Grove, who has increased its exposure, via cash-settled derivatives, to 17.28% (as at13 February), up from 6.79% on the 1st February. I have heard, but yet to confirm, there are other shareholders seeking to disrupt this Offer.  Ian Hannam, who advised Ophir’s board on its 2013 right issue, is understood to have also written to Ophir’s interim CEO Alan Booth and the board saying Medco’s offer is too low.

Trading marginally through terms. Medco’s Offer is conditional on 75%+ approval from Ophir’s shareholders, which appears tenuous.

Medco has the option to switch into a Takeover Offer, which in theory could be conditional on a 50% acceptance level, if Medco was in any way inclined to maintain Ophir’s listing. And a switch to a Tender Offer with a reduced shareholder condition, may further flesh out an alternative bidder to come over the top.

Ophir appears a worthwhile punt up at or just below terms. The next key event is the expected issuance of the Scheme booklet on the 28 February.

4. BGF Duo Stub Trade: Short Sub / Long Holdco with a Very Short-Term Horizon

• The BGF Holdco/Sub duo is making a very dynamic movement. Yesterday, they made a 2σ jump. Sub went up 5.38%. Holdco stayed flat with a 0.24% gain. The day before yesterday, they made an exact opposite movement. Holdco was up 2%. Sub suffered a 3% loss. This also resulted in a 2σ jump, just the opposite way.
• Still, local street sentiments are heavily divided on Sub’s fundamentals. There is no news or anything that may possibly reverse the tide at this point. Shorting on Sub is still going very strong. It seems that a lot of short-term traders both at home and abroad are trading on the duo lately.
• On a 120D horizon, Holdco is still undervalued relative to Sub by about 10%. The duo should be again reverted back to a mean in favor of Holdco today. I’d suggest going long Holdco and short Sub now if you had closed the previous position which we initiated last week on Feb 13.