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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