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Avanti Communications Shafts its Bondholders

By Lucian Miers | Sunday 18 September 2016

Disclosure: The author has a short position in one or more of the shares 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.

A few years ago when listed high street retailers were going down like ninepins they would invariably have the decency to inform shareholders that their equity was worthless shortly before implosion. “Little or no value” was the usual phrase.

Now that we are in the age of denial we have to work these things out for ourselves but it is always refreshing to see a company coming clean. So hats off to the guys at Xcite Energy. While they couldn’t bring themselves to use the “little or no value” tag instead preferring the clunkier “…. There will be a minimum residual equity stake attributed to the company’s existing shareholders” at least there was some attempt to tell it like it is.

Coming clean, of course, is not Avanti’Communications' (AVN) style and today’s announcement is a good example. The trick here is make no mention of previous pledges or commitments in the hope that they have been forgotten and to blunder on with new ones.

Thus the assertion in July that Avanti was in “the final stage of negotiation of an Export Credit Agency facility which has been credit committee approved” along with hopeful plans for a $50m equity raise are not even mentioned. (What happened to those plans chaps!)

Instead we get plan B which is to shaft the bond holders by paying the next coupon (due on October 1st) in paper rather than cash. That 60% of them have agreed to this shows how precarious the company’s position has become.

Far from attempting to explain yet another missed forecast we are simply given a shiny new one, plucked as usual from outer space (revenue growth of 35-40% pa for the next 2-3 years). Right.

The company in now clearly in the hands of the bondholders led by Mast Capital who foolishly threw good money after bad by buying 10% of the equity on top its debt holdings. Short of Mast taking it private as a face saver (Think Toscafund and InternetQ) which is pretty unlikely shareholders must be hoping that one of the big players puts it out of its misery and generously throws some scraps their way.

The likelihood of this happening is not great enough for bears to lose any sleep. I am happy to remain short.

This article first appeared on the Nifty Fifty website which Lucian Miers runs with Tom Winnifrith & Steve Moore. To access the website ahead of the next share tip from Tom & Steve and ahead of a new shorting idea from Lucian GO HERE

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