Incidental stuff

-->

21st May '09 by emptyend

1294 comments 413271 reads

NO TA ON THIS THREAD PLEASE - (edit) and no pointless speculations either!

I've created this thread just to park stuff in that is only tangentially-related to SOCO's interests and doesn't relate to any of the specific assets.

Unlock with Email

Unlock with Google

Already have an account?
Login here

About the Author

Emptyend

Premium Member

1294 comments

unwise2

8th Dec '11

One unpalatable explanation might be that the company doesn't rate its stock as highly as some here. If they did then the buyback should surely be directed to the stock not the convertible.

Another way to look at the purchase is that management have just reduced dilution by approx 3.5 million shares if Soco were sold for more than £5.46 per share prior to the redemption date in 2013 in addition to booking an instant profit if purchased below par.

I'm not saying this is the main reason for the buy back, but it is a possibility.

Unwize

davjo

8th Dec '11

Also, on the "incidental" theme, today's news from Cairn will be of some relevance.....not only will some of the $3.5bn be looking for a sector home but the structuring of the return of cash to shareholders may prove to be a useful pointer to the structuring of any future return of cash to shareholders in SOCO International (LON:SIA), given the close board links between Cairn and SOCO. Those for whom tax considerations may play an important role (dj?) may wish to see if the Cairn structure ticks all their boxesin due course - and lobby if it doesn't.

Indeed! I note Cairn says "The return of cash is expected to be made in a manner that will provide shareholders with an element of choice as to when and in what form they receive the cash". Sounds similar to a loan note alternative, if such is possible with Cairn being the issuer?

emptyend

8th Dec '11

I guess if they have cash earning not much and the bond trades at any kind of discount, then they might as well buy these back.

Well actually it is much more straighforward than that! They might earn 0.5% on USD deposits but, even if they pay a premium for buying back the convertible at, say, 100.5% they would be effectively getting a yield on spare cash of an extra 4%. Worth having - considering that the bond would mature anyway (converted or otherwise) on or before May 2013.

As to any price indication attached to the convertible ticker, I'd say that would be extremely unreliable - as there would be no trades to back up the price indication! Effectively SOCO is "the market" for any dealing in the convertible.

The question of buying back stock is completely different to that of buying back the convertible - the convertible purchases are a straightforward upgrading to yield on deposits. The dilution issue mentioned by unwise2 is a bit of a red herring, IMO. The rationale for buying back stock is fundamentally different to the rationale for buying back the convertible - and, frankly, they could never have deployed as much cash in buying back stock as they have deployed in buying back the convertible (because there isn't much stock being offered). I have my own views on the stock buyback, but will keep them to myself rather than feeding the abusive.

flyinghorse

8th Dec '11

I dont know who holds the convertible,but is it not also a way of reducing the institutional investors % stake of Soco and thus avoiding the potential for stake building?

loglorry

8th Dec '11

ee - you are saying that the situation is similar to a householder who has savings of say 50K in the building society paying 0.5% and a mortgage at 4.5% so it makes sense to just pay down the mortgage with savings.

While I can't argue with the logic here it still does beg the question of why not buy back equity and keep the debt given that if there is an offer for the company the fewer shares the better for all concerned.

Put another way why save 4% on the cash for say 2 years e.g. 8% when you could buy back stock which surely must now be on a discount of more than 8% than what management beleive the company is worth or can be sold for?

As for liquidity on the stock buy back you can't really be sure how much there is until they start bidding for it a bit more aggressively. Sure there might not be much volume out there now but if the bid up a bit it would flush out some sellers I'm sure. A stronger stock price from here would also mean less likely cheeky bid emerging although with such large director control this seems unlikely to go through.

Log

emptyend

8th Dec '11

is it not also a way of reducing the institutional investors % stake of Soco and thus avoiding the potential for stake building?

Technically correct, but immaterial. I think there is far too much over-analysis going on re the convertible. Buybacks of the convertible increase the effective yield on cash available. That is all. Simples.

loglorry

8th Dec '11

ee you do make me laugh.

It does still beg the question (effective yeild or not) why the company would prefer increasing the yield on a cash balance than buying back stock if it was clearly undervalued?

It isn't quite as simple as you suggest either because once convertible has been bought back it can't be undone e.g. if Soco wanted the cash currently provided by the convertible it would not be available (failing issuing new debt which would be difficult and expensive right now) .

So yes the effective yield on deposit is increased but flexibility is lost for the sake of say 4% a year. They might not need the cash (clearly they don't) but the convertible is cheap funding right now so I can't see the logic in paying it back over for example buying stock or other explo out there.

Log

emptyend

8th Dec '11

ee you do make me laugh.

So what?

You and others appear to be under the bewildering misapprehension that we are looking at an either/or situation. We aren't. The TOTAL amount that can be deployed in buybacks of ANY sort at current prices between now and next June is approximately $240mn (c$84mn convertible and c. $156mn shares). That is less than the TGT production cashflow for 2011.

Buybacks will take place at prices and in amounts that best suit the position of long-term shareholders. Focusing on buying the convertibles first is merely a matter of expediency (not least because they are not currently available to be purchased by many money market funds - a situation that only really begins to change when there becomes less than 18 months to run).

loglorry

8th Dec '11

All right keep your shirt on!

I'm not saying it doesn't make sense I just wondered why the equity buy back had not been more aggressive than I was expecting. I expect Soco to "go" for a much higher price than 350p so it makes a lot of sense to buy back stock lower than that but as you say there is plenty of time and cashflow from TGT will pile up.

Hopefully TGT production will meet targets after the initial setback. It is never very nice when targets are revised and that is probably the main reason the stock is being held back. I just hope they manage to buy a big slug of equity back before now and then.

Log

kenobi

8th Dec '11

While I can't argue with the logic here it still does beg the question of why not buy back equity and keep the debt given that if there is an offer for the company the fewer shares the better for all concerned.

But Log, if the 60 M is due to be repaid in may 2013, the company needs to start considering funding to repay it, so rather than start putting money aside, why not just pay some of it off now,

in your analogy, it's like a householder who has a interest only mortgage due in 2013, and they have 50k in cash, but rather than saving up the whole mortgage for repayment in 2013, they pay off 50k now, and pay it off early.

If there was a take over above a price, the bonds are convertible so there would be some downside in terms of dilution for current shareholders surely ? So double edged, save interest, and potential dilution,

If the bond was perpetual, or 10 years in length, there would be the arguement that we'd be better off buying stock, but since they need to pay it off in a rather short period of time I'm not sure this is so relevant.

There is probably a limit to how much bond they can buy, some holders might want to hang on and get the coupon, with the chance of a takeover and conversion, I guess ?

K

repobear

8th Dec '11

Log,

I can't see what the problem is here.

The convertible saves interest and dilution and is there to be bought back in size.

Chasing the equity too hard will drive up the price, so the steady as she goes approach is perfectly fine.

I'm sure someone will come along soon and tell us that it's better than wasting it with African explo;-)

I'm hoping that all that stuff about new deals is just playing the game though because management are a bit like some older Chelsea players in that respect.

A low risk , high reward investment so long as TGT is kept on track and potentially something extra to come from Vietnam. As the price is nowhere near reflecting the likely future cashflow it is looking like a gift really.

repo

emptyend

8th Dec '11

In addition to PV being interested buyers of ConocoPhillips assets, I see that TNK-BP also put in a bid.

No further clues on valuations - same old analyst guess being quoted (which was the low end of a wide range of estimates, IIRC)

loglorry

8th Dec '11

Fair points - I guess since it is due in a couple of years they may as well pay it off as leave cash sitting on deposit with negative real returns and the point about a bid above the conversion price adding to dilution is a good one.

Good to see debt being repaid anyway.

Log

thebuffoon

8th Dec '11

Oh yep sorry forgot to add I agree with Issac actually. Soco should definitely not send a penny on exploration which doesn't yeild extremely valueable hydrocarbon systems. Any money spend in that direction is a total waste. Issac to help the board can you tell them in advance which wells are going to be of value before they drill them as it will help us all out :-)

Shame on you Log!

Why not just be contrite (now you understand the benefits of buying some of the convertibles back) rather than going for the easy point scoring by transferring the opprobrium onto Isaac. :^}

Buffy

emptyend

8th Dec '11

Does anyone who posts on here have a US relative who is an investment manager? The style seems eerily familiar..... ;-)

kenobi

9th Dec '11

http://www.investegate.co.uk/Article.aspx?id=201112081758236558T

another 59k yesterday, I think they'll have plenty of opportunities in the next few days

K

emptyend

9th Dec '11

I think they'll have plenty of opportunities in the next few days

I don't. I think the Euro problems will merely encourage a drift into stocks like SOCO International (LON:SIA) which have real prospects, real earnings and whose assets are thousands of miles away from the EU.

IMO the last few days have merely proven that there is insufficient stock available at the lower levels.

loglorry

9th Dec '11

Buffy I always understood the merits of buying back the convertible I just wondered why they didn't pursue the stock more aggressively too. ee thinks the stock will be a lot higher soon and they won't be able to buy it back so cheaply. Maybe so in which case they should have filled their boots while they could even if it had taken the price higher.

Log

jseth123

9th Dec '11

The Company announces that on 9 December 2011, Mr Rui de Sousa, the Non-Executive Chairman of the Board, purchased 100,000 SOCO International plc ordinary shares of £0.05 each ("Shares") at a price of £2.9995086 per Share.

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=11058769

and

SOCO announces that awards under the SOCO International plc Long Term Incentive Plan ("Awards") were made yesterday to the Executive Directors of the Company, Ed Story and Roger Cagle, and to Cynthia Cagle, a PDMR, of 344,000, 258,000 and 176,000 ordinary shares of £0.05 each ("Shares"), respectively. At the time of the Awards, the market price of the Shares at the last closing was £2.967.

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=11058771

Looks like there was enough stock around for Mr de Sousa ;-) And that is 778,000 of the 880,000 unallocated shares from the LTIP... should be enough in the treasury now to cover that?

Spurticus

9th Dec '11

Not sure this makes much of a difference? At least it's good to see that they have something to sell, for the doubters.

http://af.reuters.com/article/energyOilNews/idAFL3E7N94RE20111209?sp=true

- Vietnam will price Te Giac Trang crude on the dated Brent marker from February, as it gradually shifts away from the volatile Minas pricing reference, trade sources said.

Te Giac Trang will be the fourth Vietnamese grade to be priced on the European marker, following Chim Sao, Bunga Orkid and Kekwa, putting Vietnam in line with other producers in the Asia Pacific who have also shifted from regional price markers.

PV Oil, the trading arm of state-owned Petrovietnam, is expected to notify customers of the change in Te Giac Trang pricing soon, one of the sources said. The new pricing will apply to cargoes loading in February which will be sold in a tender issued possibly next week, they said.

"Minas has been very volatile recently as we know that some players have joined the game," the source said, adding that dated Brent would be a more liquid and transparent benchmark.

(Presumably it will still trade at a premium to Brent, but perhaps with less volatility, and more clarity to the market?)

Rgds

Unlock the metrics for all these stocks and more...

Take a free trial

Facebook Twitter Youtube Instagram RSS

This site cannot substitute for professional investment advice or independent factual verification. To use it, you must accept our Terms of Use, Privacy and Disclaimer policies.

Unlock the metrics for all these stocks and more...

Take a free trial

Incidental stuff

Unlock the rest of this article with a 14 day trial

About the Author

Emptyend

1294 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...