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New World Oil and Gas – who is regulating this Omnishambles?

By Nigel Somerville, The Deputy Sheriff of AIM | Monday 4 May 2015


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


I’ll say from the start here that I have no position at all in New World Oil and Gas (NEW). That is just as well, I suppose, because viewing this from the sidelines is going to be a hoot. But it does ask a few questions of AIM Regulation (the gargantuan nature of this Orwellian misnomer is all too apparent these days), and the Nomad to New World – that fine upstanding firm of Beaumont Cornish.

On Wednesday last week, New World announced a Placing of 2.7 billion shares – a whopper of an issue, given that this is approximately four times the number of shares already in existence. The discount was a shocker even by AIM standards – the issue price of 0.055p vs the previous close of about 0.095p is a drop of over 40%.

Now this may seem like a done deal, but it is subject to shareholder approval at an EGM – and critically, the resolution to allow the Placing to go ahead is a special resolution which requires 75% of votes cast to be in favour. What happened in the wake of the Placing RNS makes for a fascinating play-out over the coming days.

With just 708m shares currently in issue, the trading volumes on Weds-Fri were huge: 1.3 billion on AIM with another 58m going through ISDX on Weds, 1bn on AIM and 128m on ISDX on Thursday, followed by 450m on AIM and 65m on ISDX on Friday. About 3 billion shares traded in three days, when there are just 708m shares in issue. It seems obvious that there has been a spot of forward-selling of the placing shares ahead of issue. I suppose we should be grateful that they waited until after the RNS. Looking through the trades data, there were plenty of T+ trades going through. What happens if the EGM resolutions are defeated? What happens if the Placing gets pulled? Will forward-sellers – flipping placing stock - have to go into the market and buy the entire company up to four times over in order to straighten the books?

We even had the comical RNS issued at 7am on 1 May but dated 30 April (whoops!) signed off by Beaumont Cornish, as Nomad, that a Mrs Judith Williams had acquired 342,328,669 shares – and that this represented 10% of the shares currently in issue. With 708m shares in issue, I make that not 10%, but 48%. Whoops again Beaumont Cornish, we can all have utter confidence your regulatory role.

If we take into account the yet-to-be-issued Placing shares then it would be 10%. Clearly Beaumont Cornish thinks this is a done deal – so much so that they seem to have forgotten that the shares have not yet been issued, and that the whole charade is subject to a shareholder vote.

But then reading through the Placing RNS, where does it specifically state that the Placing is subject to shareholder approval? The answer is that it does not. Moreover, we are told that the New World is “pleased to announce that it has raised GBP1.5m” (my underline). Even reading the shareholder Circular (HERE ) fails to get an explicit statement that the Placing is predicated on the passing of the EGM resolutions. We simply see that the resolution renews the authority for the Directors to issue confetti (and even more after the proposed Placing). But the simple fact appears to be that the Company has not yet raised the cash, because shareholders have to vote it through on a 75% majority. Well done, Beaumont Cornish – that’s really clear from the RNS. Not.

And there are a few other matters: the Company is supposed to provide reasonably up-to-date lists of significant shareholders (ie anyone over 3%). Yet the AIM Rule 26 section of the Company website has data from all the way back in August 2014. And where is the shareholder circular for the EGM – I can’t find it in the AIM Rule 26 section anywhere. Perhaps the Nomad, Beaumont Cornish, would care to explain that.

Of course, it would seem to me that there is someone else in a spot of bother here. Where did all those shares come from? It seems to me that the source of all those shares traded over the last few days has to be forward selling of the placing shares – and given that the share price has not completely collapsed – and closed on Friday at 0.085p, well above the Placing price of 0.055p – it would appear logical to suggest that someone has been buying them up.

We have, on ShareProphets, pointed to the use of bucket shops by AIM tiddlers to get placings away. Those bucket shops get a whopping discount and then flip the stock on to score an instant profit. Has that been happening here? And more to the point, could it be possible that they are now heavily on the hook for a whopping amount of stock? What if the EGM blocks the Placing? What then?

Could it be that enough of the buyers of the stock over the past few days will act to vote down the Placing at the EGM? Then what? How will all those trades be settled? We are told in the RNS that Cornhill Capital is acting as Placing Agent. One fancies that there may be a few well-chewed nails there.

In the Placing RNS we are told that New World’s Non Exec Chairman, Chris Einchcomb is “delighted with the support….from both existing and new investors”. With someone flipping on so much stock even before shareholder approval has been granted, that is quite some level of support! Well done for signing that off, Beaumont Cornish. For ‘delighted’ perhaps one should read ‘devastated’, says the ShareProphets RNS translation service.

So how many shares can shareholders prove that they own? 1bn? 2bn? 3bn? And yet there are just 700m in existence. How many of those shares will try to vote at the EGM? Is it not the case that what we have here is a disorderly market? What is the responsibility of the Nomad, Beaumont Cornish,  with that? Surely the chocolate teapots at AIM Regulation and the FCA should be stepping in. After all, the LSE is keen to tell us that its markets are all clean as a whistle and safe to use. With this sort of thing going on in such blatant fashion, surely now the London Stock Exchange will see that it is running AIM as a joke of a market. A Mickey Mouse of a casino. The regulation is utterly non-existent.

Surely it is not acceptable for an international exchange to preside over the building up of a monstrosity of a naked short which could be as much as four times the issued capital. Remember (since Beaumont Cornish appears to have forgotten) that the completion of this Placing could be voted down at the EGM. Did the flipper not realise this? Surely the practise of forward-selling placings has to be stopped.

Surely, as Tom Winnifrith has stated HERE http://www.shareprophets.com/views/11957/new-world-oil-gas-additional-issues-thoughts-bearcast-extra Beaumont Cornish cannot be allowed to continue to act as a Nomad. More on that to come.

It has oft been said on ShareProphets that since the FCA and AIM Regulation are so utterly useless, it has fallen to the Bears to act as the regulators. Are we going to see the EGM resolution fail? Will it be the case that a few smart minds have sailed against the wind and taken a kind of reverse bear position, buying when conventional wisdom is to sell? Will the reverse bears prevail? And if so, will they take out whoever has been forward-selling? That would make others think twice about partaking in such an obnoxious activity in the future.

However this pans out, it is going to leave the official regulators – and Nomad Beaumont Cornish - looking right proper Charlies. What sort of nonsense is this, to be happening on that mighty bastion of global commerce, the London Stock Exchange? It is a complete omnishambles.

Tom Winnifrith reckons the right way out is, perhaps, for the regulators to reverse all the trades from Weds onwards last week. But that would mean they admit a regulatory failure. It would also mean that flippers of non-existent stock get bailed out. If they unwind the trades then I fully agree that someone has to take the rap. Step forward Beaumont Cornish, which looks to me to be completely culpable. But the flippers have to be made to pay for their actions too: they are used to getting it all their own way at the expense of shareholders. Here they have been caught with their trousers down. They should be made to suffer the consequences otherwise they will continue to rely on the authorities to bail them out of bad trades. They will take ever greater risks and thus destabilise the markets further. Is it too much to expect the FCA and AIM Regulation to understand the concept of moral hazard?

And that applies too to the retention of Nomad licenses. How on earth can Beaumont Cornish be allowed to continue as a Nomad after this lot? It is not even as if this is the first slip up with New World (let alone all the other companies Beaumont Cornish charges fees to oversee), is it?

If the authorities do nothing, it is quite conceivable that several times the number of shares in issue will turn up to vote at the EGM, and since right now nobody seems to be able to prove who has the real shares and who has the fantasy yet-to-be-issued stock an EGM farce is in the offing. But whoever has been forward selling the placing shares could well find themselves in terminal financial trouble as they try to unwind their position in the event that the EGM blocks the Placing.

The regulation of AIM is a joke. The Nomad system is a joke. The system is broken. AIM is broken and everybody who uses it knows it. Lies, fraud, abuses and disorder are everyday occurrences. Yet the Laughing Stock Exchange thinks everything is fine, according to reports from its AGM held just last week.

Quite how the situation at New World plays out will be fun to watch. My money is on the bears forcing a change of behaviour possibly by seeing some of the flippers really hurt, and others thinking twice in future as a result. The bears will be shown to be the regulator. The king is dead, long live the king!

About ‘king time.


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Comments

7 comments

  1. A bizarre, educational and slightly terrifiying story for someone like me who is new to investing in AIM companies. I’m happy not to be involved in this one. What I don’t understand is how it is possible to sell shares that haven’t been issued yet. Wouldn’t a seller have borrowed the shares from a broker to be able to sell them short with the idea that they would subsequently cover their short once the new shares were issued? But how can more than all the shares currently in exisitence have been borrowed? What am I missing?


  2. DUCK AND DIVE

    Is the EGM required only because they are disapplying pre-emption rights? Could they avoid the need for an EGM by pulling the placing and launching instead a Placing & Open Offer?

    http://goo.gl/22KDP9

    TW: No need EGM to issue shares, no permits right now


  3. J P Spaghetti

    MASKED – borrowing more shares than have been issued constitutes naked short selling, a practice that many of even those who defend regular shorting feel should be banned (as it is in many countries). Thank you Nigel for a comprehensive and – given the almost incomprehensible incompetence that has led to this clustereff – comprehensible overview of what has taken place. This is probably a very silly question but I don’t suppose there’s any provision in the Articles for waiving the requirement for the approval of 75% of shareholders? Nah – I thought not, but this is a surreally absurd situation!


  4. DUCK AND DIVE

    Articles of Association:

    http://www.nwoilgas.com/files/4213/4618/2980/Memorandum_and_Articles_of_Association.pdf

  5. This should be played out it will be the simplest and most cost effective way for the city minus the few that hold the shorts.. end of the day they are the ones who took and forward sold shares with Zero research, why should the market show them mercy?

    As Ben T said you cannot pick and chose who makes money as

    TW has completely changed his tune (bit of a sellout) … just because he might have a few mates thinking they were in for a easy 40% with 20m shares and it might wipe them out does not mean he should back track on his views…

    Tom imo demands respect because he has always stood for what he believes in no matter what shit has been thrown his way… well in this instance he changed his tune because his mates are holding shorts. Poor form, they signed the weaver, they pick up the bill and maybe think twice before taking discount shares with no research in future.

    This could be the shit show needed to clean up the market a bit which long term will only be a good thing!!

    Vote NO and lets play it out!

    TW Note: You keep saying I have mates who are exposed and that calls me to change my tune. You are talking cock

  6. Tom – Ok.

    So you say you don’t have mates that are holding short shares here. (i don’t know if this is true or not but i will take your word for it).. You also claim to want the best for the Pi…And you want to see the markets cleaned up.. But you believe the people who are involved in Short selling of stock not yet in existence should be let off the hook ?

    Time and time again shareholders, normal Private investors (The kind you claim to be out to help) holdings are destroyed in value over and over again by these people who take discount placings, ramp the stock, flip the stock with absolutely no intentions or want for the long term success of the company and yet you think it is right for both the market and “the greater good” that these people are let off the hook?

    If I buy a s**t company like UKOG at 4.4p on no research I will lose money especially if i do it on a CFD.. If i buy a stock on a CFD at £5 and wake up one day and 50% down I will get wiped out… If i think i can get a 40% profit at the expense of others on no research occasionally I will lose money (NO research is always a good way to lose money)

    As Ben T said what about those shareholders in QPP that lost money “not knowing the full facts” among so many others… why in such a bent market should people who think they can make a fortune with NO research get let off the hook ?

    I think it is ludicrous to be honest with you…

    You were not more then 2 weeks back referring to ig and how people lost a fortune being over exposed on Forex positions… Your response was along the lines of “If you are going to over expose yourself, then tough shit”.

    Not everyone who took the placing forward sold the stock… those that did knew exactly what they were doing and they should have to pick up the bill.

    Do you believe forward selling stock is a good thing & do you think forward selling stock should be allowed? Why for those that do it time and time again should be let off the Hook? They signed the weaver, they took the risks and this time they lose… locked in pre existing shareholder (the ones your out to help) walks away the winner from this very one sided playing field.. if the ball was on the other foot some folk in the city would already be celebrating!!

    Love to hear your thought on the questions i put to you. No need for abuse we’re both Adults.

    TW Note - Read today's article. Many of those who had their stock sold DID NOT KNOW this had happened.

  7. They still signed their money over to a company… the main word being signed.

    Much like your comments on the ig forex case .. if they didn’t know what they were signing that their own fault.. it will have been written in the terms and conditions!

    I am surprised you are so quick to flip your opinion. ATB.


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