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Echo Energy: The “Cornerstone Investor” leaving so soon – surely not?

By Cynical Bear | Saturday 24 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.

My second piece on insiders cashing in and odd TR-1’s is, very predictably, looking at Echo Energy and, in particular, the two late RNS’s on Friday afternoon which show that the “Cornerstone Investor”, Greenberry plc, is offloading shares and warrants all over the shop and appears to be almost giving them away too – what a charitable sort! Let’s take a look.

First at 3.37pm on Friday afternoon, Echo Energy released a pretty standard TR-1 which merely stated that due to “An event changing the breakdown of voting rights”, presumably the recent completion of the Pegasus placing in which 99 million shares were issued, Greenberry’s shareholding had dropped from 18.5% to 11.1%.

Hold on a minute though as that didn’t make any sense at all as its actual holding had reduced by about 26 million from its post-consolidation holding of around 66 million shares. I obviously wasn’t the only person to notice this as it released a follow-up RNS at 6.26pm, at very much no-one is watching o’clock, which started as follows:

“Echo Energy, the South American focused upstream oil & gas company has been advised that Greenberry plc, the Company's Cornerstone Investor, has executed the following pre-planned transactions to distribute its equity and warrant position amongst a broad portfolio of pre-identified Institutional Investors, as follows:”

Oh, so this was all pre-planned. That makes it all ok whatever it is; let’s look at the details:

61,538,462 warrants exercisable at 3.0 pence per warrant sold to an Institutional Investor on 23rd June 2017 for a price of GBP 0.0001 per warrant;

Let me get this straight. Greenberry has transferred its entire holding of cheap warrants for almost nothing. These warrants have a current market value of over £7 million. Hmmm, lucky “Institutional Investor”, I doubt there’s any connection whatsoever. I wonder how long it will be before all these warrants are exercised and the profits realised. A month? Six weeks perhaps, I will watch with interest.

It goes on:

“138,749,177 warrants exercisable at 15.175 pence per warrants, sold to a number of Institutional and Corporate Investors on 23rd June 2017 in two tranches being 30,431,634 transferred at nil consideration and 108,317,352 transferred for a consideration of GBP 108,318;”

Ok, this looks slightly less odd as all these warrants are exercisable at 15.175p so not hugely valuable at the moment; however, it is still a huge amount of Greenberry’s warrant holding nd I thought it was meant to be the Cornerstone.

“In addition, Greenberry has sold 26,745,910 shares on 23rd June 2017 for a total consideration of GBP 447,994.”

Again, this looks odd as it has sold shares worth about £4 million for a fraction of that. In fact, it seems to have just received what it paid for them in the first place as if it is trying to avoid recognising a profit within Greenberry.

Who were the shares sold to? Will there be a TR-1 or have these shares merely gone through a secondary party and then straight on to the market at market value with the profit being generated in a different entity, one that is presumably not connected in any way whatsoever?

This all smells odd to me.

Obviously I don’t know the details behind it but it looks to me as if Greenberry is just moving valuable assets around to generate profits elsewhere and to make it easier for the equity or warrants to be disposed of in due course but, hey, it can do what it wants…..but for the love of God, stop calling it the bloody “Cornerstone Investor”. It is just an insider cashing in as it can’t believe its luck that the share price has gone so high and stayed there so quickly.

In any event, it hardly invested any money in the first place for its huge position and it’s now got rid of the vast majority of its warrants and a big slug of its equity too. If anything, Pegasus should be given the grand title of the Cornerstone Investor, as it invested £10 million (well £9 million after fees) for 99 million shares, giving it 27% of the company.

By the way, that reminds me, has anyone seen a TR-1 from Pegasus as I must have missed it?

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