NZF Group (NZF and NZF010)

[minimoke]

Thinking things through - I wonder if these guys are planning on making a large share transaction at a price significantly higher than the existing price somewhere in the days after the 24th of February? This would weight the VWAP to a market price and eliminate the possibility of the "death spiral".

The action is going to start for real after 24 Feb. Either way it doesn't look like bond holders are going to get their money back. On one hand you hang in there for another 5 years at 6% and pray every night that NZF is still around on 15/3/06 or you get converted into ordinary shares at a value yet to be determined. But given the liquidity of this stock it doesn't look like there would be much chance of selling shares as there are so few buyers.

[Enumerate]

Election Procedures
If the Company has given notice that the Noteholder may renew on new conditions, not later than the date fallig 13 Business Days before and including the Maturity Date, the Noteholder may elect whether he or she accepts the new conditions.

This is date is the 24th of February

If a Noteholder elects not to accept any new conditions offered, then no later than 10 Business Days before and including the Maturity Date the Company (at its discretion) may elect to redeem (by way of payment of cash or by the issue of Ordinary Shares) all of the Capital Notes.

So, this is the mechanism for busting the "death spiral" - after the election date but before 10 days before maturity - if you have elected to convert to shares, they can redeem your holding in cash.

So, the proper "death spiral" predator will:

1) Elect to convert to shares
2) Wait until 10 days before maturity (hoping for light volume on the VWAP)
3) Within the 10 day window to maturity (also within the 20 day VWAP calculation interval) and then dump high volumes of shares on market to drive down VWAP.

Bottom line: if you want cash - convert to shares and be prepared to play hardball in the establishment of the conversion VWAP.

[invessi]

I find it surprising that no one has commented on the likely effect of converting the bonds to shares, I don't know how many individual bondholders there are but I imagine the conversion will turn around the situation of 75% of the current shareholding being held by company directors, after conversion, we should see a lot more trading activity, particulary as they are in train to bring in a new Australian (I would think) partner/funder!

Colin, you should be thankfull for what you have, it could have been a lot worse!

[Enumerate]

I find it surprising that no one has commented on the likely effect of converting the bonds to shares,

We did ... right at the start of the commentary:

At current prices, they have a market capitalisation of about $12m. There are $20m of the NZF010 - 60% conversion to shares means that the NZF010 holders will own 50% of the company!

Also, discussion of the "death spiral" is also a de facto discussion on conversion.

In fact, my view now is that conversion to shares is the best path forward.

[invessi]

I agree, exciting times ahead!

[minimoke]

In fact, my view now is that conversion to shares is the best path forward.

Isn't that really the only option.
One one hand you can lock your money in at 6% for five years with no guarantee you'll get your money back in 2016 and an environmental where interest rates are sure to rise.

Or by default you end up with a pile of ordinary shares. If thats you're option then you are at the Mercy of those who are going to manipulate the price in that Feb / March period. At the moment you have an $11m company spread amongst 76.6m ordinary shares. At the end of this aren't you still going to have an $11m company but spread amongst a squllion shares?

And the silver lining is?

[minimoke]

T
So, the proper "death spiral" predator will:

1) Elect to convert to shares
2) Wait until 10 days before maturity (hoping for light volume on the VWAP)
3) Within the 10 day window to maturity (also within the 20 day VWAP calculation interval) and then dump high volumes of shares on market to drive down VWAP.

Bottom line: if you want cash - convert to shares and be prepared to play hardball in the establishment of the conversion VWAP.

I need some help here!.
(1) Bond holder have only been offered one thing - that is to take up 6% to 2016. There is no offer to elect to convert to shares - though this happens by default through inaction on the offer.
(2) A bond holder can only wait -there is nothing else for them to do.
(3) How does a bond holder dump shares they haven't been issued yet. How do you dump high volumes in an illiquid market where there are no buyers (except one current one who is only after 10,000 at $0.045.

If you want cash you surely have to be praying that someone will buy your converted shares but if the price has been driven down low you can't expect much cash can you?

[invessi]

You have not accounted for the $20m sitting in their finance company book!

[minimoke]

You have not accounted for the $20m sitting in their finance company book!

I thought I had - isn't that reflected in the value the market puts on the ordinary shares. Their interim report shows total net assets of $12.7m

[Jaa]

I created a Google Docs spreadsheet last year when I looked at NZF010 in the expectation that they would be converted to shares.

By my calculations noteholders should end up with ~65% of the company if none decide to renew.

I have set it so that anyone can view and edit it. So feel free to play around with different share prices or estimate figures or even improve the model. It factors in the 5% discount.

https://spreadsheets.google.com/ccc?...thkey=CN2h8PkC

Disc: I didn't end up buying any