By Tom Winnifrith, The Sheriff of AIM | Tuesday 17 November 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.
Ben has produced yet another truly awful piece on Gulf Keystone GKP) today, Flip Flop is a stale long and wrong bull, I have called it spot on as a sell from 180p down to today’s 25.75p. But his offering today “facts about Gulf Keystone’s debt” is not based on fact and makes assertions that are ludicrous.
After my Gulf Keystone (GKP) piece last week (HERE) drew the predictable furious response from Winnifrith (HERE), I’ve been looking into the company’s numbers in a bit more detail. There’s no denying that Gulf is teetering on the edge. However, it is not dead yet. Although it has little to no room for error, so long as the Kurds keep up their regular payments, it is possible that Gulf will be able to pay down its debt and refinance its balance sheet by April 2017. A broker note found its way into my inbox today, broadly supporting this view. It contained some interesting observations on Gulf’s debt position worth sharing.
I would mention which broker released the note, but this firm has been unnecessarily pissy with ShareProphets in the past about publishing its work. No doubt, the note is circulating on the Internet, but the key points about Gulf’s debt are as follows:
Let’s start with the cash balance – that was before a half year interest payment. The most recent statement of cash was 23 October - $48.6 million. I suggest Ben that you fail #factcheck on that one, or rather you state a misleading fact.
Then let’s come to the payments from the Kurds which run at $12 million a month net to Gulf. It also has costs which run at c$9 million a month. So over the next six months assuming the Kurds play ball you will see a net operating inflow of $18 million before interest payments of $26.4 million kick in again. In other words by April 2016 cash will be down at $40.2 million. Six months later it will be at $31.8 million. In other words even if the Kurds keep making payments by October next year Gulf will be in default on its bonds. #factcheck flip flop.
Finally lets come to the most ridiculous statement made by young Ben “so long as the Kurds keep up their regular payments, it is possible that Gulf will be able to pay down its debt and refinance its balance sheet by April 2017”. What utter crap. Even with the Kurds playing ball, after interest costs Gulf is burning cash. How on earth can flip flop think that Gulf can thus pay down its debt?
It cannot. There is more chance of me shagging Cheryl Cole and Rita Ora as well as that blond halfwit who co-presents XFactor, all by close of play today than of Gulf repaying a cent of its debt when it falls due. The only question is whether Gulf breaches its bond covenants beforehand.
This is why the 6.25% bonds yield 17% and the 13% bonds yield 21%. Bondholders know that they are unlikely to get all their money back which tells you that equity holders face wipeout.
Please ignore long and wrong for yonks Turney. The shares remain a storming sell with a (generous) target of 10p but quite possibly this is a zero.
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