Convertible Bond Arbitrage -GKP

SP, news and funding T Badger 71 15 View Author's profileAdd to favouritesIgnoreAuthor's posts I also suspect the post may be removed, and I might get banned I suppose. I thought the post relatively innocent conjecture. The objective, pretty simple I want my investment to grow, the last 4 years have been a roller coaster where only the traders have made money. I don't have an agenda, but I am very very confused by the actions of GKP in the main market move, the CPR and the bonds (with warrants) the warrants thing does make me think. To be honest I have a lot invested here, and I believe in the asset, I just have had enough of the information management, late declarations of sales and market critical information like she not coming out apart from in a CPR - enough to last a lifetime. The price is below where I first invested, I've traded and held this stock for years and believed in the dampers. In no small part due to information on iii I have over invested here. Thats for sure. Its time for a balanced conversation The main worry was something reuters or FT alpha put out saying that at the end of the day the bond holders are going to own this share. Whilst we know the CPR is a base line case, the company is only just deciding to act like that. and Yes I do except good news for 12 months on upside. But really - how can Genel claim 22% RF for BB whilst we get 6% allocated. HOw can MOL get away with AB being 4 times bigger vs CPR. Whoever you believe in this crazy story one things true, you can't believe anything. - At this point we can start to see the workings of our CEO and his army of advisors. So what happened? They authorised the Edison report that managed expectations downwards after talking it up within a year. They then decided on a strategy to put out a low reserves figure as a "base line" - all after years of over egging the pudding. Then worse of all they allow the funding to run dry, and put out a statement that reads like the company is going insolvent - as they move to the main market. "You would be insane to do that, it's just crazy" source CEO of oil and gas company tells me. I thought it was insane, but it's nice to know you are not alone.... So why. I Posted a while ago mentioning that the convertible bonds would have been short covered in a company like GKP. At today's unrealistic artificial prices these shorts show a big profit. Getting a low warrant with shares away allows these shorts to be closed and profit to be taken on the inevitable rise. As the price rises to x then they will short again - I think this target price is £1.85 in the short term. Now this hypothesis sounds like market manipulation, but this is conjecture and no way to prove. ((Conjecture: 1. Inference or judgment based on inconclusive or incomplete evidence; guesswork. 2. A statement, opinion, or conclusion based on guesswork:)) If you felt there were a conspiracy one could imagine the conversation re bonds.. "Look we have this massive retail investor base, they are all crazy, and the trading volumes are huge. It's perfect for bond arbitrage. I got this plan right. I know your CBs are underwater but you've short covered them right, I mean who wouldn't in a volatile retail market right? ((Definition of 'Convertible Bond Arbitrage' An arbitrage strategy that aims to capitalize on mispricing between a convertible bond and its underlying stock. The strategy is generally market neutral; in other words, the arbitrageur seeks to generate consistent returns with minimal volatility regardless of market direction through a combination of long and short positions in the convertible bond and underlying stock. Investopedia explains ' Convertible Bond Arbitrage ' If the convertible bond is cheap or undervalued relative to the underlying stock, the arbitrageur will take a long position in the convertible bond and a simultaneous short position in the stock. Conversely, if the convertible bond is overpriced relative to the underlying stock, the arbitrageur will take a short position in the convertible bond and a simultaneous long position in the underlying stock. The price of a convertible bond is especially sensitive to changes in interest rates, the price of the underlying stock, and the issuer's credit rating. Therefore, another type of convertible bond arbitrage involves buying a convertible bond and hedging two of the three factors so as to get exposure to the third factor at an attractive price. )) Well here's the plan. We are going to move to main market on pretext that Todd can tap up his US mates to invest. For 3 months prior to the main market move we won't put out any news or say a thing and the price will drip away to a low base. Then just prior to the main market listing we will issue our CPR. We will use this as a reason to come clean on sh6 owc and the optimistic reserves expectation, ok ok I know I might get some flack for selling out all my shares before the sh6 news was in the market, but hey we got to look after ourselves right. Anyhow the price will tumble. We will get Ewan to be pretty vague about payment for oil we have already sold, hey I know he is a bad actor but they will believe its just financial incompetence or political risk. Then get this, just before we go to the main market we will come out and say we don't have any money to realise the base plan in the CPR and get Edison to say the nav per share is like 60p. Brilliant plan eh, the price will crash. We will take our time over the funding put a couple of stories out about it being pretty hard to get the bond away, price will drip away further. Then given how scared we would have got the Pi's we will then easily get away with giving you guys 40million shares for a £1. And a reasonable coupon to boot. Meantime you can be buying up some shares in the market if you like, we don't want the price to fall to 60p else that tony bloke will come and acquire us and we loose our jobs. Anyhow you give us the money the share price will shoot up as those poor gullible PIs buy back in above where they were forced out, and we will make a killing - oh and next year we will do the same. We will be long gone by three years, so you will get your cash back if there is a change of control and can milk it in the interim. We don't care if we get sold out cheap, we all have got these exit awards, oh and those other option shares with those £2.75 trigger prices. That's just PI bait. We can talk about "the road we travel together" and stuff like that to keep em on the hook. Come on let's face it this company will be owned by the bond holders and exec board by the time we sell out and we can get rid cheap if it gets too hot. But you got to love those retail investors for giving us the volatility to pull this little stunt off, aren't we just so clever" Or you could choose to believe it was all an unavoidable set of tough circumstances that the board have been valiantly navigating to try to realise best value for the shareholders. .So devious or blind incompetence. Take your pick. Trouble is I have been told that the institutions are not overly pleased, that in all likelihood Todd has to go. End of the day the shareholders, not bond holders that own the business. M&G non execs been played like a fiddle on the pretext of transparency. Maybe this is the last time, but is doubt it. Other o&g CEOs like Todd, only because by his standards their salaries look very cheap but don't respect him, not that I have heard. He brings too much Wild West into the sector, and apart from that sucks up investment away from them using sound bites that in hindsight have the ring of the snake oil salesman. However amongst all of this the asset base of GKP is great, I just wish Tony Hayward managed it. In the short term it has a great deal of upside but my target for this share has been more than halved. Todd and his merry men have now annoyed far too many investors and institutions, and it has been recognised he has "had his snort in the trough for too long and taken way too much. It is unlikely he will be here post re-election. So maybe he will sell out being forced out? Of and FYI GKP got a new country manager cause the last one was fired. The conversations with Genel, Exxon and others have not materialized at this point. Maybe the Chinese will buy it who knows. The consensus from guys I speak to seems to be that whilst the asset is worthwhile, the company is a basket case. The shareholder base is too evangelistic to listen to sense on pricing - must put off potential bidders - they all saw the run up to £4.50. It is widely rumored that Genel would only pay £500million for the company as it stands. I am very long on this share, but quite frankly I should have backed Genel. I'm sure in the short term that the price will bounce and rally to a comfort point in time for the agm; it always does this time of year. And as soon as it does a load of new guys will come in, and a load of long-term investors will hold at a lower level or promptly exit. Whilst the PI base is probably the majority of shareholders, gaining consensus is impossible. Anyhow, as a short term trading vehicle this share is great, it's the longer-term investment that I worry about and I've held for over 4 years. And that worry is predicated on the management of the company, alongside the real costs in moving to production that are probably an additional $200 million from what's stated. The exit price will be similarly manipulated, but that all said, In the meantime it's a traders share Badger