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By Tom Winnifrith | Thursday 25 May 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.
The great bear raider Wassem Shakoor has termed Frontera (FRR) as one of the three most overvalued bits of crap on AIM. Another is MySquar (MYSQ) where Lucian Miers has just published a devestating expose HERE. Back to Frontera where Waseem has stuck it to the Bulletin Board Morons today. He writes:
BBM: "If people on the short side can present a cogent argument to explain why the board would convert secured to non secured debt at this time in a failing company I would be interested to hear it."
1. The debt was worth very little as it was irrecoverable. FRR had no means to repay it.
2. The debt of $26m did not reflect, in any way, the amount that the board had loaned to the FRR. The value of it has ballooned due to a compound 15% interest rate over the years and payment in lieu of completely unrealistic salaries.
3. Shares can be sold into spikes to realise some value, whereas debt cannot. SN is quite good at creating temporary spikes, as you will have seen over the years.
4. Without getting rid of the debt, there was no chance of attracting capital which the company desperately needs. I was once a debt holder in MOG, another company that desperately needed funds. New investors insisted that debt holders took an 80% haircut before they put a penny in. I accepted, as I figured it was better to have 20% of something than 100% of nothing. I subsequently sold the shares to recover what I could.
The BBM states " You are assuming that the company has no assets and only debt. While there is little on the current balance sheet at the moment the cost recovery pool and should they activate the taribani and constructed gas instrastructure that is currently locked in there is significant hidden value here."
Waseem: I disagree. I don't think there is any hidden value anywhere. These same assets have attracted no interest from any serious O&G company in terms of farm-in since FRR floated.
BBM: "Also if that's what they are doing why would YA agree to equally restrictive terms on their loan conversion and how does that work? And the $8m vendor debt that is converting?"
Waseem: I don't think there are particularly restrictive terms to conversion. I have serious doubts over the nature of the money owed to YA, and whether it has already been recouped by selling forward. YA are not in the habit of taking risks as they are death spiral financiers. I'm also puzzled where the vendor debt has appeared from and what the cash has been used for? I hope the full year accounts will shed some light on this.
BBM: " I agree they needed to reduce the debt to attract new investment that is what they have done. You are assuming they then intend to get rid of it. Firstly, they can't for 1 year minimum and then who would buy it if they started selling to shift 2bn shares."
Waseem: I think you have a lot more faith in what FRR states in its RNSs than I do. I don't think the restrictions on sale mean much at all. There is nothing to stop the recipients of shares received selling stock they already own rather than the ones they have just been given.
BBM: "Finally Wshak - if there is to be a "massive potential/news induced spike that SN is good at" for them to get out (in 1 year) maybe we should all hold and enjoy the spike as well and sell before them?"
Waseem: I think we've already seen a large spike in the share price and large turnover in shares. I'd be very interested in seeing the names of the sellers, although I've no doubt that we won't find out for a while. There are many ways to avoid disclosure.
I think there is a fundamental difference in our approach to FRR. You think that whatever you are told is in good faith, whereas I think every word is carefully written to avoid giving the true state of affairs.
I don't think the debt conversion is about getting control of an essentially worthless company. The debt holders are not the only ones who are owed money. It would be virtually impossible to get vendor debt converted if related party debt was not written down first.
The most important issue for FRR is to get more money in, at whatever cost to shareholders. Without cash, the company will quickly be insolvent, which I expect to be made clear in the year end accounts.
Even the placement for $700K at 0.167p means nothing in terms of setting a base for the share price,. If that has been done when shares trade at twice that level, the placement has probably been done with bucket shops who will simply flip the shares for a risk free profit. The wording in the last RNS (especially constant references to 1p conversion) helps hold the price so that they can unload.
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