ERG 0.00% 2.0¢ eneco refresh ltd

ERG - Convertible Note Conversion - The Dilution a

  1. 99 Posts.
    Extract of ERG Announcement

    ERG Group today announced that the holders of its unlisted
    convertible notes have agreed to convert some or all of their
    holdings into ERG ordinary shares. The effect of the conversion is to
    reduce ERG's liability on maturity of these notes from the $22.8
    million face value to the extent that the notes are converted.

    ERG originally issued 18,178,989 8% convertible notes at $1.65 to
    Motorola Inc on 16 October 1997, with a maturity date of 15 October
    2002. During the term of these notes, Motorola converted 4,350,000
    notes into ordinary shares and sold a further 8,000,000 notes to two
    financial institutions. As a result there are now 13,828,989 notes on
    issue, of which Motorola holds 5,828,989. The two financial
    institutions and Motorola have agreed to convert theirholdings into
    ordinary shares in certain circumstances and the date for conversion
    has been extended to 15 November 2002. The notes are convertible at
    the rate of one note for three ordinary shares, providing an
    effective share conversion price of $0.55.

    If all notes are converted, ERG will issue 41,486,967 new ordinary
    shares to the three convertible noteholders. The noteholders will be
    entitled to a payment from ERG based on the difference between $0.55
    and the sale priceof ERG's shares. Any notes not converted will be
    redeemed on or before 15 November 2002 (or such later date as is
    agreed between the holder and ERG).

    ERG will issue a disclosure notice and reliance notice under ASIC
    Class Order 02/272 upon conversion of any of the Notes to enable the
    resale of the shares issued upon conversion.

    So now for the good news.....

    Dilution of shareholders value is a very basic concept. It is obvious ERG had no other option. It has no spare cash to redeem the convertible note. This is the best alternative. Convert the convertible note into equity and make up the difference with cash. So what are shareholders left with...more shares on issue, cash reserves absorbed into the deficit between the market value of the shares and the face value of the convertible note $0.55.

    This transaction may reflects other issues that have not been mentioned to the market.

    Shall we spend some time considering this issue.

    Perhaps the investors in the notes have lost faith in ERG's ability to deliver on the future prediction. This company has continued to promise the world and deliver very little.

    It is very clear that Motorola have lost faith and the rest of the CN holders must be feeling the same way.

    The word "DILUTION" means that there will be more shares on issue. This will put a downward pressure on the stock.

    If this is the case we may see ERG's share price under continued downward pressure.

    The story continues to unfold, what can the rest of shareholders expect. Continued pain and continued promises that may be at risk.

    When it comes to RISK....This stock provides it all...High Risk...Low Return.....The worst kind of investment. Add to this the dilution factor..well it is just the sought of investment that most investors and institutions have abandoned. WHY are the rest of the shareholders hanging on.

    There are many signals and signs along the journey. Please do not ignore this one.

    Is that an iceburg on the horizon.......

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