Excellent theory. thanks John

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SA1588

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29/11/16

13:13

Post #: 20962379
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Originally posted by JID ↑

Thanks City,

I hope the pain is manageable today and that it's a temporary situation for you.

I think that all your points are valid and the shorting could well be due to a scenario you lay out.

One other possibility is a party/ parties associated with the original Senior Note issue, whereby 54m warrants were issued with a strike price of $1.28 and due to mature in 2018, are engineering a more profitable outcome for themselves.

2018 is a long time to wait to exercise their options, lock in some profit and move onto another investment.

If the SP is higher than that in the interim (which it has been) it is possible that these guys are locking in their profitable upside by shorting an equivalent number of shares to the warrants that they hold.

This would lock in a guaranteed profit for them now.

They can then also take this cash now, from the short sale, and go and invest the money elsewhere in the interim, until they have to exercise their warrant in 2018 to cover their short sold share.

This would allow them access to very cheap capital for a couple of years whereby they only pay a fee on the borrowed shares and the (low) dividend. Possibly 2.1% cost of capital for them to access these funds?

In addition, their short selling can also have a negative impact on the SP. Thus, if in part, their actions lead the SP to fall they can buy their recently shorted shares back and rinse and repeat later at a higher SP ...

Not a bad way to make money from their perspective and essentially riskless.

Cheers
John

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Excellent theory. thanks John

TFC Price at posting: $1.55 Sentiment: Buy Disclosure: Held
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0 Great analysis

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Excellent theory. thanks John

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