By Tom Winnifrith | Tuesday 13 June 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.
Mercantile Ports & Logistics (MPL) has served up dismal numbers & pathetic excuses today and its shares have slumped to a pitiful 5.625p. My target remains 0p as it was in this expose a few months ago. I will turn to the results later but before then...
Disgraced Nomad of choice for fraudsters such as Quindell, that is to say Lagos Securities, and the management have failedc to answere basic questions about numerous misleading statements. As a result certain shareholders have written to two interested parties to see if they would be willing to help. The shareholders note:
Sadly, we are yet to receive a reply from either MPL’s main contractor ITDand the MMB, the Maritime Regulatory Authority for Mumbai Harbour. It would seem that Indian companies and Government regulatory authorities are either very, very slow at responding or are an extremely 'close knit' family.
However, after many months of badgering Redleaf Comms, appointed by Mercantile to improve shareholder communications, the shareholders finally secured a 1 hour video conference meeting with the CEO and COO in May 2017.
It was pointed out that in the Shareholders Circular dated 31st October 2016, the market was told the principle reason to raise the additional £37 million of funds was to complete the build out of the Port Terminal to the 'preferred' specification of the Directors. Consequently, it would have been ENTIRELY REASONABLE for shareholders to assume that the additional funds totalling some 55% of that raised at IPO together together with the £49 million of bank debt raised for the project, will have resulted in the Directors 'preferred’ Port specification being a material improvement to that contained in the IPO documentation and 2013 Arden Partners BUY Note.
In non sector specialist terms, what shareholders originally were sold at IPO was a 'BMW 5 series' specification small port project. The Directors stated in the 31st October 2016 Shareholders Placing and Open Offer documents, that the Company is not in any way cash strapped but, by providing us with another £37 million, we would be able to complete the construction to our 'preferred' specification - so Institutional shareholders and PI’s were in effect being asked to now fund a BMW M5 standard Port. Sadly, many cheerfully did.
The reality of the ‘preferred’ port terminal specification drawn out from management under questioning at the Video Conference meeting is that shareholders have been seriously misled in a number of ways. Since they will not now be getting a shiny new BMW M5 Port Terminal, nor even a BMW 5 Series model, but if they are lucky a bog standard 1 Series model with a price tag of two BMW M5’s, after taking into account the impact of the bank debt.
The shareholders have also taken this up with James Sutcliffe, the NED and claim to have told him facts about the build out of the Port at Karanja(or lack of it!), he should have known about but was completely unaware of. It was suggested that he contacted the NOMAD because MPL has issued RNS statements( examples were provided), that subsequent evidence gathered by shareholders often at some considerable financial cost have provedwildly inaccurate at best.
The shareholders say that they expected an improvement after reporting to Nomad Lagos the totally unacceptable situation, where to prove management were blatantly lying in previous RNS statements, shareholders at their own cost hired a light aircraft to fly over the site to take pictures of what the management were describing as a port under construction - only to receive an in-flight telephone update from the somewhat baffled and concerned pilot and his photographer, as they repeatedly flew back and forth over the area looking for the port; "what port?, there's only mudflats and mangroves and a fisherman mending his nets, there’s no Port under construction”
The situation with regard to the accuracy of RNS Statements has not only failed to improve but actually deteriorated seriously when the NOMAD travelled to India to work with management to prepare the Documentation for the Shareholders Circular for the 31 October 2016 Placing and Open Offer. At the very least Cenkos should have checked what Mercantile's management was claiming in the technical documentation, that the port build out has continued without material interruption since October 2015, and that there was going to be no materially negative changes to the Port specification were in fact true.
The NOMAD has clearly failed to do this simple check, because if it had carried out some basic on-site due diligence, it would have discovered that NO Land reclamation work had been carried out during the four months from the mid June 2016 project update through to the 31st October 2016 publication of the fund raise circular. Cenkos then compounded this serious error by allowing Mercantile's management to include in the circular ludicrously optimistic construction progress targets that were many multiples of the rate previously achieved at any time since construction began. The photographic update provided by the company on 17th January 2017, unwittingly enabled those with the technical knowledge, to quickly ascertain that the Shareholders Circular to raise the £37 million had in fact been a complete work of fiction because NO reclamation work at all had been carried out since the mid June 2016 project update. The circular said the expected target was another 65 acres reclaimed by end Jan 2017, the actual amount reclaimed was ZERO, because there was no reclamation work carried out in that 7 month period whatsoever!
Also bear in mind there is £6.4 million of annual bank interest payments racking up during this long period of inaction. Incredibly, the circular also said that shareholders could expect a total of 105 additional acres reclaimed by Q1/2017, the company cheerfully reported a grand total of 4 additional acres in its March 2017 update!
The frequency of misleading statements by the Mercantile executive management is breathtaking for a London Stock Exchange quoted company and incredibly, continues to plumb new depths despite numerous complaints to the Nomad. It begs the question what due diligence Cenkos routinely completes to check the accuracy of the content of the statements issued to the market; in particular the Oct 2016 Fund Raising Documentation.
When considering the financial impact of the Directors 'preferred’ specification(not detailed in the £37 million additional fund raise documentation), we believe it is a material reduction in port land, berth size and configuration, and depth of shipping access channel, compared to the IPO specification and build tender documentation.
Considering this appalling management performance, it is extremely concerning that two executive directors with no industry experience at senior management level have taken out of the company between them around £2 million in salary plus huge expenses since IPO , along with a further £0.5 million paid in fees to the two NEDS, to deliver a 9 fold dilution at a 96% discount to the IPO share-price, to raise funds to implement changes to the final specification, that by any objective examination should have materially reduced the final build cost not increased it by up to £37 million.
It should come as no surprise then, that the post £72 million IPO, post £49 million debt raise and post £37 million Placing and Open OfferMercantile share-price performance charts for what is a straightforward real estate construction project have one thing in common - they could almost be laid over one another and appear as a single chart - direction: straight down!
In the 7 years since IPO, overwhelmingly, those foolishly tempted into catching the 'falling Mercantile knife' quickly learned to their horror, that the razor sharp knife is in fact welded to a 2 tonne anvil and taking 'no prisoners' as it hurtles mercilessly downwards under gravity.
A classic quote from the CEO at the meeting was "i've felt as much pain(share-price wise) as everyone else post IPO”. Seemingly oblivious and shamelessly indifferent to the fact that he did not pay for his 880,000 shares, which cost 'everyone else' some £2.2 million at IPO and, he has since banked an incredible £1.25 million of shareholders funds in salary plus stratospheric business class travel, restaurant and entertaining expenses, for doing scandalously little, other than to deliver the paper loss of 97% of shareholders investments.
Between 2010 to 2014 the executive management spent their time doing lord knows what, considering this period saw nothing going on due apparently to the Planning Consent process proving anything but as straightforward as the market was led to believe in the Admission Document: which strongly suggested the process was well under way and should complete quickly since Mercantile had the benefit of Executive Chairman Mr Gandhi's huge industry 'experience' and 'influence' in the sector.
The sobering reality for Mercantile IPO shareholders is that after 7 years they have seen an incredible 97% of their ‘ investment’, a word many would probably use in it's loosest possible sense where Mercantile is concerned, disappear like morning mist. And then are asked by a shameless, brazen management that, should they wish to 'protect' the 3% of value remaining, they should collectively put their hands in their wallets for another £37 mercantile!
Scandalously, despite supposedly performing the role of Executive Chairman for 7 years - the extremely shy Mr Gandhi is highly difficult to track down - since he never returns telephone calls, emails or answers letters, if our experience is any guide. While this huge loss of shareholder value is going on he has remained permanently in the shadows. Lord knows what he does for Mercantile shareholders, when not busy dealing with personal writs for allegedly siphoning tens of millions of quid out of other companies he had executive responsibility for or, settling out of court insider dealing offences with the regulator. Since he has ultimate responsibility for managing the cash on deposit and bank debt drawdown, particularly when incredibly, the company continues to operate with no FD and just the services of a young accountant based overseas, and has a cash burn rate that appears to be multiples of the asset value of the on-site work completed to date.
Mercantile’s Karanja Port development seems to be nothing more than a crudely crafted ruse to raise £150 million of cash and debt for a project that is now being developed as a low cost, scaled down version of the original that, probably could be built for less than a third of the total funds and debt raised.
All the project progress targets from the commencement of construction have proved to be a work of complete fiction - "i will stake my reputation of 25 years, that there will be a working port at Karanja by the end of 2015!" Mikhail Gandhi Executive Chairman, is an example of the appalling record of failure to deliver shareholders have experienced since IPO.
Sadly, another huge AIM embarrassment, whose serious misrepresentation by management should have been dealt with by the Nomad, and dearth of accountability by the II’s, who instead, along with many PI’s will almost certainly lose another £37 million of their investors funds once the dust finally settles on this investment car crash.
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