The release of the rights offer results should have confirmed in...

The release of the rights offer results should have confirmed in every minority shareholder’s mind that they have been royally screwed over and duded by management and Bangchak. I should have posted on HC sooner when the offer was first announced to find out what the consensus was and see if there was any interest in opposing it as I believed that there were ample grounds and precedence for doing so. The results released this morning confirm that belief.

I contacted ASIC a while back re my concerns and I’m waiting for a reply but now realise that there will probably be no help from them as this issue may not even come within their ambit. In hindsight they probably were not the right ones to contact and I should have approached the Takeovers Panel (“TP”) in the first place. However, even though the offer has closed I believe you have up to two months from when an offer is announced to make an application to the TP. Any application at this late stage would probably find it hard going but I think a strong argument could still be made for unacceptable circumstances.

I apologise if I seem to be ranting or flogging a dead horse but I can’t believe that no-one has suggested that some action be taken before now. I believe, in spite of what I’ve seen happen many times in the past, that all shareholders and not just the top end of town should get the focus and benefit of management’s best efforts to increase share value. In my opinion this is not what we got from Nido management in spite of their combined years of business acumen and experience which has resulted in their almost complete disregard of minority shareholder interests to the benefit of the largest shareholder. I don’t believe that the bulk of minority shareholders out there are so apathetic that they are just going to let management and Bangchak walk all over them and meekly accept the crumbs they throw us from the table after they have finished stuffing their faces.

My objection is: The offer is part of a strategy by Bangchak to increase its shareholding and thereby proceed to compulsory acquisition cheaply by deterring minority shareholders from taking up their entitlements and thus avoid the need to obtain shareholder approval, and to avoid the issues associated with a takeover or the 3 percent creep exceptions allowed for in the Corporations Act (the “Act”), rather than having to source the shares necessary to achieve compulsory acquisition by buying them in the normal course of business on the open market, thereby denying minority shareholders the right to deal with and get fair value for their shares on a fair, open, level and transparent market, and that the offer has been deliberately structured to achieve that aim.

The following are some possible lines of argument - some of it may partly be a re-hash of an earlier post I made and it is a bit lengthly:

1.  The size of the offer compared to the company’s capitalisation pre-offer - $32 million versus less than $4 million. The number of shares on issue would increase over 11 times making the offer highly dilutive.

2.  The amount each minority shareholder had to put up just to maintain their percentage holding compared to its value pre-offer - almost $10 for every $1 pre-offer value of shares held.

3.  Of the 404 plus million shares subscribed for Bangchak accounted for approximately 98.9% of the total. Approximately 5% of minority shareholders applied for shares, that’s about 1% of the total shareholder base pre-offer. This has resulted in Bangchak’s shareholding increasing to 97% which was the purpose of the offer in the first place. As stated in the release there was no market for the entitlements or shortfall shares which only goes to confirm how big a rort the whole process was from start to finish. If ever ASIC, the TP or whoever is supposed to be protecting the rights and interests of minority shareholders as well as ensuring that the markets are an open, fair and level playing field ever needed evidence that this is not so then this is it. If taking action in this case on behalf of the 2,767 odd minority shareholders in Nido, as well as the wider investing public, and the sending of a loud and clear message to all like-minded management and company Boards out there is not in the wider public’s interest I don’t know what is. Public advocacy and greater good just does not start and end with the high profile, high dollar cases. It starts at the bottom and moves upwards and should be seen to do so otherwise the Act, all the laws, legislation and associated regulations are just a waste of time and meaningless.

4.  Management makes a lot of noise about the rationale for and timing of the offer, basically stating that it is necessary to ensure the company’s future and that the process for the development of the mid-Galoc area must start now as time is of the essence. Prior to Nido becoming operator in late 2014 / early 2015 the decision had already been made by the previous operator, Otto Energy, that the mid-Galoc development was expected to proceed in early 2015. NIdo confirmed this in their own announcements. When Nido took over as operator there was a delay of 6 months while a strategic review, etc., was completed. In July 2015 they announced that an extensive technical review of the project had been completed and pending optimisation and approval of the final development plan, first oil was expected by January 2018. However, since that time, management has reverted back to a “Joint Venture continuing to evaluate further exploration, appraisal and incremental development opportunities at the Galoc oil field” mindset without any explanation or reason for the delay. And now, when the share price is at an all-time low, they announce that the development phase must start now if we are to have first oil before current production at Galoc reaches a sub-commercial level in 2019. Why was this left to the last minute and why the delay since mid 2015 when everything was supposed to first begin as management publicly stated?

5.  The top-up and shortfall facilities were a sham from the start, dressed up to appear as if everything possible was done to lessen the dilutive affect of the offer. A number of arguments can be put forward supporting this contention. The main point is that management would have know that the structure of the offer was such that few, if any, of the minority shareholders would even take up their initial rights let alone apply for shares under the top-up and shortfall facilities. Bangchak would automatically reach the compulsory threshold level and as such both the top-up and shortfall facilities would be rendered moot. And what has happened?

6.  Alternative means could have been used to source the funds. No mention was made of the US$14 million in cash held as of 30 September 2016. Part of this could have been used to reduce the amount needed to be raised. Also Bangchak already had a US$120 million debt facility in place with approximately US$42 undrawn. This could have been used as part of a debt / cash / equity raising instead of just equity. Again there are arguments to support this belief despite what management says about the facility’s use. One for instance: Why was Bangchak prepared to commit $25 million in new funds but not prepared to allow use of the US$120 million facility already in place? The reason is that “debt” as opposed to “equity” doesn’t allow you to increase your control at depressed share prices so as to allow the compulsory acquisition of minorities cheaply.

7.  Management’s rationale that debt was not an appropriate funding source for an “appraisal” well is rubbish as they had previously categorised the mid-Galoc field as a development project when the decision to proceed was made in July 2015 when Nido was operator and, debt had previously been used for development activities. There is more detail to refute most if not all of management’s rationale around the use of debt and the company’s debt levels.

8.  Shareholder approval was never sought for the related party loan to buy Otto Energy’s 33% share of the Galoc oil field despite management stating more than once that they would seek it. I’m not really sure if this is an argument that the TP would accept as relevant in this situation but I think it, along with other facts that I haven’t mentioned, supports the view that management’s focus was primarily on what was in Bangchak’s best interest as opposed to the interests of the shareholders as a whole, especially those of the minority shareholders.

Further arguments can be made that management’s lack of action in protecting future oil sale revenue at a time of heightened oil price volatility was remiss to say the least, especially in light of the debt re-payment schedule under the loan facility. This does not have a direct bearing on our situation but once again is indicative of management actions that only ended up being of benefit to the largest shareholder rather than the company as a whole. It also calls into question their supposed “concern” with the company’s debt levels which are after all to a related party. Or to put it another way - as of today they borrowed 97% of the money from themselves and they owe it to themselves (legalities re separate entities aside). In any case the company’s debt levels and low cash balances are as a direct result of management failing to act prudently to protect the financial integrity of the company’s assets, an abrogation of one of the most important and fundamental director’s duties you can get.

There’s a lot more that can be argued regarding the independence of directors, timing of management decisions, outcomes from those decisions, etc. The essential point here is that Nido management would have known in advance that the most likely outcome of the offer would be the compulsory acquisition by Bangchak at prices lower than would be the case through the ordinary acquisition of shares, or through a takeover, or through the 3 percent creep exceptions allowed under the Act, and the offer was deliberately structured to achieve that aim. Almost everything done by management since the failed takeover attempt in November 2014 was part of a strategy to realise this, and the rights offer is just the end game in that strategy. The independent experts report comes next where without a doubt minority shareholders will be offered cents in the dollar for their shares in the company.

If you are as pissed off about this as I am please say something. Frankly I am amazed that there has been virtually no argument or posting about this, especially considering the content of the announcement today. There are shareholders out there who have invested way in excess of $100,000 in this stock who will end up getting cents on the dollar as a result of this compulsory acquisition while Bangchak walks away with multi millions of dollars for very little risk or outlay. It certainly pays to have management on your side. There must be lawyers, accountants, etc., out there who are Nido shareholders who have the experience and knowledge necessary to mount an effective argument against this.
An application to the TP costs $2,350 and I would have made one myself before this except quite frankly I did not have the money and was more or less resigned to losing everything I had invested. However I am prepared to contribute more than my fair share if there are enough like minded shareholders out there however it would have to be done very quickly. I suggest that the cost of possibly getting Nido back on track where the interests of all shareholders is considered and is the focus of the Board would be a very small investment compared to what we are all going to lose if we sit back and just accept this as a fait accompli.

Sorry for the drum banging and length of this post. Please - thoughts, comments, suggestions, feedback, brickbats, whatever.

Regards,
OldSoul