Sinking feeling creeps up on shareholders!

23rd Sep '16 by Dearg Doom

7 comments 6033 reads

Mercantile Ports & Logistics (LON:MPL)

(formerly known as SKIL Ports and Logistics)

Market Cap £5.31m

Share Price 10.25p

Interim Results

The interim results released yesterday, temporarily moved the share price higher after a 50% vertical drop last week. The share price has quickly loss those gains to drop back down again. The company was very eager in the RNS to re-assure investors that it is not in financial distress and that it has cash in the bank of £23.1m and a further lending facility of £23.6m. Total available to finish port is £46.7 million. This could at face value make this share attractive to speculative investors looking for a ticket for a bumpy sea passage. The loss to date for original investors is now 95% based on the IPO price with further losses expected.

A week ago the company announced that it estimates it needs another £36 million more on top of the £46.7m it has available to finish the port. Several financing options will be explored by the company. Options include a share placing, an external investor or an increased banking facility. In short the £66 million spent on planning and construction to date appears lost or hold little value.

Comment:

The company had supposedly raise sufficient funds at the IPO to complete the port. The port is many years overdue for completion. Latest news is that some ground beneath the port seems to have sunk further than expected on the recent work done and requires considerable expense and time to correct.

"These discussions continued after the period end when it also became apparent that the land most recently reclaimed had settled more than planned. As a result, an additional quantity of infill material will be required. This issue has been exacerbated by price inflation of quarried fill materials since the project commenced"

The company has no cash in reality as the company has a repayment due of £15.9 million in 2019 on which interest is accruing at 13.5% per year.

The original deal to build and lease the port was a poorly negotiated deal by the directors. There is now very little likelihood of a financial return to shareholders given the terms of the original agreement. Basically, the original terms were to build the port for free, pay royalties and also pay minimum cargo volume fees to the landowners. Later on…

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AnonymousUser37607

23rd Sep '16

Best bet now is that they find a strategic buyer to take this project over; if there isn't one willing to step forward it says it all really (could well end up as a local Indian 'solution'). Asking existing, UK based investors to fund this ongoing hole in the sinking ground seems absurd given they have failed to deliver anything on budget, timescale is so far behind, have no customers lined up etc. Who can honestly say they have any idea on the project economics here - potential users, type of cargo, what they would be prepared to pay, port operating costs, maintenance capex, dredging etc; endless list of questions.

Funding greenfield infrastructure projects in developing countries via the public markets in the UK - genius for the project sponsors, horrendous for the investors that ponied up their cash. Not such a great use of AIM.

unwise2

27th Sep '16

Why they did not buy the land outright at the beginning from some other landowner is beyond me?

If you had bothered to do some research on the subject you would have discovered the vast majority of ports around the world are leased from local authorities.

10 seconds of using Google brought up this for example:

http://www.portstrategy.com/news101/port-operation...

"Most port privatisations proceed by way of the grant of a concession by government to private entities, often joint ventures between a mixture of financial investors, port operators, construction companies and local interests.

Alternatives are the outright sale (freehold) of port estates, which are extremely rare.."

Dearg Doom

Hi Unwise,

Thank you for your reply. Hopefully, you are not a long term holder of this share.

Here is an extract and a link for an Indian Port. https://en.wikipedia.org/wiki/Mundra_Port

"Mundra Port is the largest private port of India located on the north shores of the Gulf of Kutch near Mundra, Kutch district, Gujarat. Formerly it was operated by Mundra Port and Special Economic Zone Limited (MPSEZ) owned by Adani Group[1] which later it was expanded into Adani Ports & SEZ Limited (APSEZ) managing several ports.

In 2013-2014, Mundra Port has handled 100 million tonnes of cargo in a year becoming the first Indian port to do so. It also became India's biggest port by cargo handled."

India has a coastline of 6,100km. Other options were available including a longer lease period. Why not a 100 year lease arrangement. A BOO agreement instead of a BOOT arrangement. If you don't get what you want in one part of the country, you can always go to another Indian region or another country until the figures work better for the investors.

Here is an abstract from MMB which is the state organisation that controls the coastline development in question for SKIL Ports and Logistics.

Port Project

The Government of Maharashtra has encouraged development of port sector and adopted an investor-friendly Port Policy. The port policy has evolved over the years with considerable changes during 1996, 2000, 2002. The salient features of the port policy are:

Development on Build, Own, Operate, Share and Transfer (BOOST) basis

Concession period of 50 years

Concessional Wharfage on cargo handling at port

If available, Govt. land on lease at market valuation

Equity participation in SPV by MMB up to 11%

Whereas, road linkage to nearest State Highway are to be partly funded by the State, development of roads within port limits will be the responsibility of developer.

Freedom given to developer to fix tariffs

Government to appoint two Directors on SPV company formed for port development

I don't have their latest guidelines, but it does give you an idea that everything is not fixed in stone at a given point in time. Also there are many other separate regions on Indian coastline where a more fruitful discussion might have taken place.

Regards

gus 1065

31st Oct '16

RNS released this morning setting out details for a proposed £36m placement and open offer to recapitalise the company. Looks pretty dilutive for existing shareholders if they don't wish to top up.

http://www.investegate.co.uk/skil-ports--38-logistics--spl-/rns/placing--open-offer-and-subcriptions/201610310700108055N/

A lot of detail to plough through. One immediate leap out is that it appears the Chairman's stake will be reduced from 29% to a touch over 10% after the various mechanics are worked through. A vote of confidence in the project?

Gus.

SKIL Ports & Logistics (LON:SPL)

Mid Price 12.25p (up 16.67%)

Bid/Offer 12p - 12.5p

Fund Raising Announcement

Cenkos Securities, the brokers deserve some credit to have apparently got a proposed placing away at 10p per share. A small open offer is available to existing shareholders to raise a further £1.6m. A substantial quantity of shares have been issued to the building contractor. Existing management has pledged to buy a good amount of stock as well.

Raising the necessary £37.6 million with possibly circa 5% reduction for costs incurred is probably the best existing shareholders could have expected. Existing shareholders will be left with 11.4% after the placing.

The port is due to be finished by Q3 in 2017. The company’s name is being changed to Mercantile Ports and Logistics Limited shortly.

------------------------------------------------------------------------------------------------------------------

“The Facility at a glance

Once completed, the Project Land which will comprise approximately 200 acres of reclaimed land with

1,000 metres of sea frontage and the Facility is expected to have the following specifications:

• a port with an annual capacity of approximately 8 million tonnes per annum;

• six berths serviced by cranes capable of handling bulk, container and general cargo;

• a waterway which is capable of accommodating 4,000 DWT vessels with a draft of up to 4.5 metres;

and

• warehousing facilities for break-bulk, packaged but non-containerised, cargo.”

----------------------------------------------------------------------------------------------------------------

Potential Investment?

Existing or new potential private investors surely would like to have seen some cash flow spreadsheets showing a future payback on a worthwhile risk reward basis. The placing discount to the market share price is particularly small and does give some initial comfort. Mind you the share price did fall more than 50% in the previous weeks on the company’s need to raise more funds in its September RNS announcement!

Fly in the ointment is the fact that the existing executive chairman Nikhil Gandhi is still involved in the company. So little has been achieved with all the money spent to date coupled with the delayed completion. Investors at the IPO have lost 96% of their original investment plus the time value of that money for many years which could have been in alternative investments.

Nikhil Gandhi is committed to purchase £3 million of stock by January 2017. I would have thought his position in the company is very much on the line and that the purchase price of the shares may need to be paid from his resignation lump sum or the forced sale of the stock at a higher price than the 10p he is currently paying. Some of the other directors possibly through prompting from the broker have offered to buy some shares in the placing.

Share Price Movement

The fundraising removes the uncertainty concerning the final construction of the port. Did MMB (Maharashtra Maritime Board) the ultimate owners of the port in 2039 chip into the placing.

The share price spike this morning could simply be market support from the broker. Probably a lot wiser to stay clear until the New Year when the stock flippers have gone and financial projections are available.

The stock is a speculative punt at best, but at least the company will have the use of a finished port and the future income stream. Don’t forget the company originally entered into onerous commitments on minimum cargo volumes involving minimum payments and royalties. Actual profits may be suppressed by a good percentage. Expect some more minor time delays and a few cost overruns. This will be counterbalanced by more optimistic notes on volumes and the announcements of favourable contract wins by the new port with customers.

Final Comment

I prefer to wait before investing if at all. I need to see senior existing management removed. Hopefully this will occur shortly given the shift in balance of power with the new shares issued. At least at that point, I know the company is being run for the investors at the new 10p share price level. It could potentially offer a decent return on investment.

PS (I have never held any position in this company.)

13th Jun '17

Share Price 5.38p (today down 12.4%)

Bid/Offer 5.25p - 5.50p

593fecf5b54ecmercantile_ports_new_logo.p

In November 2016, the company had run out of money to complete the port. The company managed to raise £36 million at a deep discount. This basically diluted the original investors.

This Year's Problems Included:

Reduced access to the site, due to deterioration of the road
Undetected rock in the harbour basin during piling meant that some delays have been experienced.
Management does not know how long monsoon will be before construction can re-start this year.

There is no mention of profit. Maybe the company might have two berths generating revenue by the end of the year. Construction of the Taj Mahal took twenty years to finish. This port seems to be equally as challenging to complete on both a time schedule or on a budget.

Investors reaction sees the share price sink further. At least at zero, you have a solid foundation.

@MyDeargDoom

aflash

14th Jun '17

Thank-you for bringing the results to our attention, doctor D. Doom!

I was surprised when reading an annual report of a fund I hold to see that they financed MPL last year.

That family of 'unit trusts' was left to me by my grandfather in the 1960s. I have held it all this time, the equivalent of two and a half Taj Mahals. The funds are worth a lot more now than they were then, so sometimes the managers must get it right.

Encouraged to believe there is a viable project somewhere I followed the fund and bought a tiny holding which is now down more than today's 12%. When it gets close to zero I shall top up unless I read in the unit trust fund report that they have liquidated their position.

Sinking feeling creeps up on shareholders!

Mercantile Ports & Logistics (LON:MPL)

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Dearg Doom

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Mercantile Ports & Logistics (LON:MPL)

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