Shareholders may pay a high price for ERG rescueApril 8, 2008...

Shareholders may pay a high price for ERG rescue
April 8, 2008

There may be more bad news after the company's long-delayed interim results.

ERG is expected to release its long-delayed interim results by April 18 after being granted a final extension by the Australian Securities and Investments Commission.

The loss-plagued group will be splashing around more red ink in the announcement, with $80 million in write-downs from the Sydney Tcard project, which was designed to integrate public transport ticketing across the city's ferries, buses and trains.

But it isn't just the delayed interim results that have kept the stock in a trading suspension.

When the half-year results are released, ERG says it expects to be able to "provide an update on plans to restructure the operations and capital structure of the company, at which time it is anticipated that the company will request that the Australian Securities Exchange lift the trading suspension of the company's shares".

This refers to talks the company is having with its main shareholder, Duncan Saville, whose cash injections have kept the company afloat.

Saville's help may come at a steep price for the other shareholders, as he negotiates to have his $85 million worth of secured loans - and a new $15 million funding facility - converted into equity.

With ERG shares last trading at 4.4c, a full conversion of debt at current prices would swamp the current share float and massively dilute the share of other investors. At least it should take the focus off another dismal result.