By Nigel Somerville, the Deputy Sheriff of AIM | Wednesday 19 October 2016
Disclosure: I own shares in one or more of the stocks mentioned. 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.
Last night after hours AIM-listed New World Oil and Gas updated the market on a number of matters and it looks to be bad news all round. Having already announced that its proposed RTO with Big Sofa was off the table, the latest bombshell was that under AIM Rules it is to lose its listing on 9 November and that it had already agreed to part company with its Nomad (the useless Beaumont Cornish) as from the close next Monday. The mess could hardly seem worse.
To the delisting under AIM Rules first: this refers to AIM Rule 41 which says that companies which have been suspended from trading on the Casino for six months are automatically sent to the execution chamber. Since New World was suspended pending the Big Sofa RTO paperwork on 9 May the clock is ticking.
But with that deal now off, the issue of a legacy matter has left the company with a bit of a headache. This, of course, refers to money-laundering allegations under the previous board which are currently being addressed but until that is resolved one way or the other the company’s shares have to remain suspended pending clarification.
There remains the recent precedent set over the summer by Marcus Stuttard’s Oxymorons at AIM Regulation allowing Filthy Forty play LED International Holdings (LED) to bypass Rule 41 on the grounds that the reason for the suspension had changed – as tenuous a ruling as you could get, since the change was from pending accounts to…er….pending accounts (FY vs interims). Whatever….
And so with New World having been suspended pending publication of an Admission Document in relation to the (now defunct) Big Sofa deal, the shares are now suspended pending clarification. That, it seems to me, is a change in the basis for the suspension and thus the six month clock should be reset – IF Aim Regulation is going to demonstrate any consistency at all.
But there is also the pressing matter that the company had previously agreed to part company with the worst Nomad in London as from the close of business next Monday. Under the current circumstances, with all the uncertainties over the company’s position in relation to the money-laundering allegations, it seems inconceivable that any other Nomad will step in – at least until that matter is settled. In the absence of positive developments there, this would see New World booted off the Casino on 25 November even if it gets a stay of execution under Aim Rule 41.
And just to complicate matters, we are also told that the company was deemed to have become an AIM Rule 15 cash shell as from 1 September, which leaves it six months to do a deal or get suspended, and then a further 6 months before being given the boot. If, that is, it gets a stay of execution under AIM Rule 41 and it can keep its Nomad beyond next Monday.
Take your pick: 9 November, 25 November, 18 April 2017 or 1 Sept 2018: doom, gloom and disaster, then.
Or perhaps not. The company seems to suggest that an arrangement is being sought with Beaumont Cornish to stay on as Nomad – one might imagine that this would be until balance sheet clarity has been achieved and another Nomad brought in. So there is some chance of that one being resolved, however tenuous it may seem.
And if the legacy issue is resolved then the reason for suspension is lifted, so then the company gets six months from 1 Sept to do a deal as an AIM Rule 15 cash shell before the threat of suspension is once again to the fore.
There is, of course, a mountain to climb and one can quite see that the serial embarrassments brought upon the Casino by New World under its previous management – and under the watchful gaze of Roland “Fatty” Cornish as Nomad – might see AIM Regulation highly motivated to take the chance to get rid of this company at the first opportunity. That would mean punishing the wrong target - the shareholders - but this is the world’s most successful growth market we are talking about.
It seems to me that if the current board of New World can resolve the financial position of the company quickly, it should be given the chance to make full use of the important asset of the company’s AIM listing in order to give New World’s battered shareholders the best chance of a return. We shall see if common sense prevails, but I’m not holding my breath.
Meanwhile there is the Big Sofa deal. It may be all off with New World, but I hear that things are moving in other directions – and New World is owed £600,000 by Big Sofa, now repayable on demand. I am also hearing that the proposed funding round (until the New World deal was pulled) had been heavily oversubscribed.
If Big Sofa finds its way into another RTO with a different AIM company (one with a rather less chequered history!) and the fundraise finally goes ahead, it would seem that one sensible way forward for New World would be to convert its debt into equity in the new company – assuming that offer is available. It could bring in some very useful profits.
As such, things are perhaps not as gloomy as might appear. We shall have to wait and see what happens about the AIM listing and whether or not it can be preserved. But it seems to me that at worst, shareholders could find themselves holding shares in a private company which has access to deal flow courtesy of its current management. In the longer term, one might hope to see a decent return, although it will take time. But a pie-in-the-sky scenario could see a new business injected and a reappearance on the Casino in the end.
But for that to work, the management must be allowed the time and space to give it their best shot. Make no mistake, this is no rose-tinted assessment but I sense that there is a strong motivation within the company to turn things around: there are reputations at stake and those at the helm will not want to be seen to go down with the ship. The potential stain on the official record, I rather think, is concentrating minds.
But with the now twice-postponed AGM giving shareholders the opportunity to put an additional man on the board, one might consider what happens if there is disagreement. With only two directors, they have little choice but to try to get the company out of its current mess – it would be reputational suicide to up sticks and walk now.
But if you had a strong reputation for creating shareholder value and an opportunity to offload this particular baby onto someone else presented itself before disaster really struck, what would you do?
That is the question on my mind as I consider the new AGM resolution. Frankly, right now I think that the company needs that distraction like a hole in the head.
Never miss a story.
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