ERG 0.00% 2.0¢ eneco refresh ltd


  1. 99 Posts.
    Ladies and Gentlemen

    The ERG balance sheet reflects a number of obvious liabilities. The big one is the convertible note. $250 million big ones. A big number by anyones observation.

    Can we put this into the context of ERG's current market capitalisation of $148 million.

    This equation is frightening to say the least. This single monumental liability is greater than its current market capitalisation.

    This tells you something that you should not ignore. In a word "DANGER".

    Most corporates no matter how large or small would be very concerned about this imbalance, so should shareholders.

    The current ERGG is trading at a considerable discount to the face value of the notes.

    So what are the potential implications to the existing shareholders. The reality is it is highly unlikely that ERG will be in a position to convert these notes for face value given the spread between the notes and the current share market value.

    So what alternatives are available to the company. Convert the note into equity however noteholders will want to have a deal that can recoup value. On a very basic analysis. The convertible noteholders are in a position to cause a significant dilution in shareholder value.

    On the face of it $250 million would more than enough to buy the company with some change left over.

    So with this scenario, what can poor old ERG shareholders expect. Dilution.

    Dilution of shareholder value and further downward pressure on this stock. Not saying this is not a bad thing given it may allow ERG to survive for some time. The question is which side of the equation you want to be on. Oh, by the way, interest due for payment on this note very soon. Lets hope there is enough cash to make the payment.

    If this is on the agenda. This does not necessarily fix the underlying business given the long term contracts that have continues to generate losses. Year on Year.

    When you go for a swim, will it be hot or cold. The titanic went down, surrounded by iceburgs with no hot water bottles on board to keep the chill away.

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