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Igas – hats off to the board

By Nigel Somerville | Friday 17 March 2017

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 never thought I’d be saying this, but it is hats off the to the board which looks to have saved the company. This morning AIM-listed Igas Energy (IGAS) updated on its rescue refinancing and it looks to be a done deal. Shareholders will be feeling the pain, but as we have continually warned as the share price declined this was an inevitable consequence of the financial predicament in which the company found itself, the legacy of the Andrew “Piggy” Austin era.

Having previously mooted a series of fundraisings and debt for equity swaps at 4.5p, and the kicking of some of the secured debt into the long grass the company this morning announced that it had secured signed commitments to accept the proposals from approximately 75% of the secured bondholders and from 61% of unsecured bondholders. Whilst there is still a little way to go on the juniors it looks as though the support of the debt is a done deal.

Indeed, the juniors seem to have come out of this very well indeed. Before the refinancing details emerged they were trading at just 23.5c in the $ (not that they were trading that much). The deal for them sees a debt for equity at 4.5p, based on exchanging the debt at 62.5c in the $. I can’t see them rejecting the terms…..

It looks as though the only impediment to overcome now is getting shareholders to accept the deal. It seems to me that a vote against would be suicidal and risk the secured bondholders taking all the assets for themselves. As painful as it is to have seen the share price collapse, this really is a much better escape than I had imagined would be possible. I guess the ability of the company to raise a substantial amount of new cash (well in excess of the current market capitalisation) outmanoeuvred the KKR-backed Barbarians at the Gate, who will now have the right to appoint a board member assuming the deal all progresses.

From what at one point looked to be a hopeless situation, with the company floundering around failing to get bondholder support even for a standstill deal whilst refinancing negotiations were concluded, we now have the prospect of seeing Igas emerge as a very different entity from the one drowning in debt and heading for oblivion that we had.

I have to say that I think that the deal is a mightily impressive achievement by the new board, and it is hats off to Stephen Bowler and his team.

Is Igas investable now? Well, with debt set to be very heavily reduced and a board which looks to have pulled off the impossible you have to think it is. But that is before looking at implied valuations, oil prices and prospects thereof. But certainly the board looks to have covered itself in glory as I see it, and a decent management is one of the first things one would be looking for.

I’ll hold off for now, preferring to watch events unfold but my suspicion is that there could be a bit of a bounce once the ink is dry on the rescue.

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