REG - Molecular Energies - Proposed sale of President Energy Holding UK Ltd

Molecular EnergiesAnnouncement

05/09/2023 07:00

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230905:nRSE3269La&default-theme=true

RNS Number : 3269L  Molecular Energies PLC  05 September 2023

5 September 2023

MOLECULAR ENERGIES PLC

("MEN" or the "Company")

 

Proposed sale of President Energy Holding UK Limited ("PEH") for up to US$40
Million

 

Notice of General Meeting

 

Molecular Energies (AIM: MEN), the international energy company, is today
publishing a circular to be sent to shareholders ("the Circular") relating to
the proposed sale of its Argentinian oil and gas business to PLLG Investments
Limited ("the Purchaser"), a company beneficially owned by Peter Levine, for a
total potential consideration of up to US$40 million (the "Sale").

 

The Sale is of the entire issued share capital of President Energy Holding UK
Limited being the beneficial owner of President Petroleum S.A. ("PPSA"), the
owner and operator of the Company's business and assets in Argentina and is
more fully detailed below and in the Circular. All other assets and businesses
of MEN including in Paraguay and elsewhere in the world are not affected.

 

The consideration for the Sale comprises:

 

·      US$2m cash payment on the date falling 12 months from completion of
the Sale;

·      The Purchaser to procure the repayment of US$13 million debt and
interest owed by PPSA to MEN;

·      Contingent consideration of up to 20% of the net free cashflow of
PPSA over the next 5 years.

 

All of the above up to the sum of US$40 million in aggregate and subject to
certain conditions.

 

The Sale constitutes a substantial property transaction pursuant to s190 of
the Companies Act 2006 and a fundamental change of business pursuant to Rule
15 of the AIM Rules for Companies. Accordingly, the Sale requires the approval
of shareholders in a general meeting and consequently the Circular contains a
notice of general meeting to be held at 3pm on 21 September at The RAG Army
& Navy Club, 36 Pall Mall, London, SW1Y 5JN (the "General Meeting"). The
Directors have also determined that it is appropriate, taking into account the
size of the Company, to extend the share authorities granted to the Directors
to allow more flexibility in the future as the Company moves forward in its
business and strategy. Shareholders will accordingly be asked to vote on such
extension at the General Meeting.

 

The Purchaser of PEH is a company ultimately beneficially owned by Peter
Levine. Since Peter Levine is a Director and substantial shareholder in the
Company, the Sale represents a related party transaction pursuant to Rule 13
of the AIM Rules for Companies.

 

The Independent Directors (being all those save for Peter Levine), having
consulted finnCap Ltd, the Company's Nominated Adviser, consider that the
terms of the Sale are fair and reasonable insofar as the Company's
shareholders are concerned.

 

Notice of the General Meeting and a form of proxy are available on the
Company's website at
www.molecularenergiesplc.com/investors/documents-circulars/
(http://www.molecularenergiesplc.com/investors/documents-circulars/) .
(http://www.molecularenergiesplc.com/investors/documents-circulars/)

 

General Meeting

 

The Independent Directors of the Company being all directors apart from Peter
Levine (the "Independent Directors") unanimously recommend the passing of the
Resolutions as being in the best interests of the Company. Accordingly, the
Independent Directors intend to vote in favour of such Resolution in respect
of their entire beneficial holdings.

 

Peter Levine also intends to vote in favour of such Resolutions in respect of
his entire beneficial holding, which in aggregate with the Independent
Directors, represents approximately 29% of the entire issued share capital of
the Company.

 

Robert Shepherd, Financial Director, commented:

 

"The proposals contained in the Circular represent the best interests of the
Company. It is clear that the market is not appreciative of investment in
Argentina and the current economic and political environment combined with the
rampant inflation and severe restrictions on foreign investment have led the
Independent Directors to conclude that the divestment of our Argentine
business is appropriate.

 

"The Sale preserves potential upside for the Company from both future trading
of the Argentine business as well as repayment of certain existing
inter-company debt depending on the circumstances whilst removing Argentine
exposure and debt from group and allows Molecular to build a substantial
business free from those concerns."

 

Circular to Shareholders

 

The following is extracted from the Circular:

 

Introduction

 

The Sale provides MEN with the potential to grow significantly as a public
company without the anchor drag of being involved in a country sadly regarded
by many investors in both the London and international markets as uninvestable
at the present time.

 

Additionally, the Sale will enable MEN, as a Group, to be free of
approximately US$33 million of third-party financial debt which sits in the
Argentine company. This will leave the only remaining financial debt in MEN as
a long-term and interest-free loan currently standing at US$12.1 million
provided by one of Peter Levine's beneficially owned companies with a maturity
date of end of December 2025 and capable of extension if the parties agree.

 

MEN will continue to be an active trading company upon completion of the Sale,
retaining its interest in a highly prospective exploration licence in
Paraguay, with an exploration well currently due to commence drilling in
September, as well as its material and valuable interests in Atome Energy PLC
and Green House Capital.

 

The Sale requires approval by the shareholders of MEN pursuant to s190 of the
Companies Act 2006 due to the fact that Peter Levine is a director of the
Company and the ultimate beneficial owner of the Purchaser, and due to the
Sale being of sufficient size relative to that of the Company to constitute a
disposal resulting in a fundamental change of business pursuant to Rule 15 of
the AIM Rules. Completion of the Sale is, therefore, conditional upon (amongst
other things) the approval of shareholders at a General Meeting of the
Company. The matters referred to in this Circular do not affect the intention
of MEN to spin-out its Green House Capital division via an Initial Public
Offering during the course of this year.

 

At the same time, the authorities granted to the Directors to issue shares are
proposed to be enlarged to give MEN the flexibility to use capital increases
for the benefit of expansion going forward.

 

Background to PEH

 

PEH is the beneficial owner of the entire issued share capital of President
Petroleum S.A ("PPSA"), a company registered and operating under the laws of
Argentina.

 

PPSA is the owner and operator of MEN's oil and gas interests in Argentina
comprising 3 oil and gas producing concessions and one producing exploration
licence in the Rio Negro Province and an oil producing concession in the
Province of Salta. The concessions held in Rio Negro are 90% beneficially
owned and expire subject to renewal in 2027/8, the exploration licence is
wholly owned and expires within 12 months and the concession in Salta is
entirely beneficially owned and due to expire in 2050 subject to renewal.

 

Current Position

 

All of the concessions/licences are conventional mature fields and are subject
to inevitable natural declines, the consequences of which have seen net oil
and gas production decrease from an average of 1,650 boepd in 2022 to 1,514
boepd in the second quarter of 2023.

 

PPSA is operationally profitable with an EBITDA registered with the Argentine
authorities of approximately US$3.5 million for the first 6 months of 2023 on
turnover of approximately US$16 million. Much of this operational profit is
used to service its third-party financial debts which are currently
approximately US$33 million. All financial debts, both capital and interest,
are being serviced. Current registered 2P hydrocarbon reserves as at 31
December 2022 are approximately 19 mmboe. PPSA will on the contemplated
completion of the Sale owe MEN approximately US$13 million, comprised of the
sum of US$10.9 million by way of an intercompany loan and US$1.9 million of
accrued interest, which it is currently prohibited to service due to Argentina
Central Bank restrictions on all such foreign payments.

 

Reason for Sale

 

The independent directors (being all directors save for Peter Levine) consider
that the Sale is in the best interests of shareholders in MEN for the
following reasons:

 

1.  The country of Argentina is economically and politically volatile and
unstable and has degraded materially since the Company became invested there,
especially so this year. In effect, the country has run out of dollars and a
primary election for President of the country in August produced a surprising
result creating significantly more instability and uncertainty and resulting
in an approximate 22% depreciation of the Peso overnight. Inflation is running
at over 100% per annum and projected to increase with no certainty of the
country restoring its economic and political stability in the medium term.
Since the primary election the country has imposed a Medanito (domestic crude)
reference price of US$56 a barrel.

 

2.  PPSA is currently prevented from paying any of its intergroup debts or
interest on them by Central Bank restrictions, nor can it pay overseas service
providers and there is in effect a Federal block on it being able to pay for
any assets or service equipment from abroad. No dividends can likewise be paid
out of the country to foreign interests. These are general restrictions
affecting all areas of business in Argentina and, whilst PPSA is a
dollar-based business, it is adversely limited by the environment in which it
operates.

 

3.  The public markets in London have shown a consistent lack of appreciation
of foreign investment in Argentina, demonstrated by the present market
capitalisation of MEN. Of the three AIM companies with material oil and gas
interests in Argentina (including MEN), one has been privatized by its largest
shareholder (Phoenix Global Resources) and the other (Echo Energy) has reduced
its Argentine exposure to a relatively minimal level with its shares at the
date hereof suspended from trading on AIM.

 

4.  The mature fields owned and operated by PPSA, whilst operationally
profitable, require sustained investment. The Board considers it inadvisable
for foreign investment to be made into PPSA from MEN to continue expanding the
business. There is no guarantee when or if at all that monies can be repaid,
and dividends paid. This acts as a severe inhibitor when it comes to using the
capital markets for the benefit of MEN's other businesses.

 

5.   The Independent Directors therefore consider that Argentina is not a
country into which MEN as a London Stock Market company should continue to
invest and accordingly PPSA should no longer be held by MEN.

 

The Independent Directors also consider that the Sale will preserve the
structure of PPSA and permit a smooth and expeditious transfer of ownership
without requirement of any Argentine regulatory consents and approvals.

 

By selling to an entity of Peter Levine, it will also preserve, as far as is
reasonably possible, the financial integrity of PPSA in the face of its
third-party financial creditors, the Provinces and business partners. It also
avoids the usual costly and lengthy due diligence, warranties and indemnities
that are required by independent third parties given there are in this case
none required by the Purchaser other than as to title to the shares of PEH so
any risk to MEN in this regard is obviated.

 

The Sale has been deliberately structured to provide MEN with a near-term cash
injection, provide for repayment in due course of the US$13 million of debt
and accrued interest owing by PPSA to MEN and provide MEN with exposure to any
enhancement in PPSA's profitability and ability to pay dividends by way of the
contingent consideration linked to free cash flow generation all subject to
conditions.

 

The Terms of the Sale

 

The terms of the Sale are:

 

1.   Subject to PPSA continuing to carry out its operations in the normal and
ordinary course during the period of 12 months from completion of the Sale,
the Purchaser will, on the date falling 12 months from completion of the Sale,
pay to MEN a cash sum of US$2 million.

 

2.   By way of further consideration, the approximately US$13 million
intercompany debt and interest owed by PPSA to MEN shall be procured by the
Purchaser to be repaid by PPSA subject to, and as may be permitted by,
Argentinian law and as may be able to be paid subject to cash flow
requirements of PPSA and third-party financial debt to which such loan is
subordinated. As the debt will no longer be owed intercompany, it will after
the Sale be recognised as a form of receivable in MEN's accounts contrary to
the present position where it does not feature in the Group balance sheet.

 

3.   Subject as in paragraph 1 above, over the period of a maximum of 5 years
from completion of the Sale, the Purchaser will pay to MEN a sum equivalent to
20% of net free cash flow of PPSA each year after taking into account capital
and operating expenditure, debt conditions and servicing, reasonable working
capital requirements and repayment of the intercompany debt and subject to
PPSA being able to pay from time to time net dividends out of the country and
to the Purchaser.

 

Providing always that the total consideration as above shall be limited to the
aggregate sum of US$40 million.

 

Authorities

 

The Resolutions numbered 2 and 3 relate to the authority of the Directors to
issue Ordinary Shares including on a non-pre-emptive basis.

 

Taking into account the current relatively small market capital of the Company
and Company's initiatives recently announced as of today, it is considered
that increasing the relevant authorities to:

 

·      an amount representing 50 per cent of the aggregate issued share
capital in respect of the general authority of the Directors to allot Ordinary
Shares; and

·      an amount representing 30 per cent of the aggregate issued share
capital in respect of the general authority of the Directors to allot Ordinary
Shares for cash on a non-pre-emptive basis,

·      will allow the Company to have more flexibility in expanding its
businesses.

 

Related Party Transactions

 

Peter Levine is a Director and substantial shareholder in the Company. The
Purchaser is a company ultimately beneficially owned by Peter Levine.
Accordingly, the Sale represents a related party transaction pursuant to Rule
13 of the AIM Rules for Companies.

 

The Independent Directors comprising all the Directors of the Company other
than Peter Levine, having consulted finnCap Ltd, the Company's Nominated
Adviser, consider that the terms of the Sale are fair and reasonable insofar
as the Company's shareholders are concerned.

 

 Contact:

 Molecular Energies PLC                      +44 (0)20 7016 7950

 Peter Levine, Chairman                      info@molecularenergiesplc.com (mailto:info@molecularenergiesplc.com)

 Rob Shepherd, Group FD

 finnCap (Nominated Advisor and Broker)      +44 (0)20 7220 0500

 Christopher Raggett, George Dollemore

 Tavistock (Financial PR & IR)               +44 (0)20 7920 3150

 Simon Hudson, Nick Elwes, Charles Baister

 

 

Notes to Editors

 

Molecular Energies PLC is an AIM listed company at the forefront of energy
development and has interests across the energy spectrum, from oil and gas
projects to subdivisions in the green and alternative energy sub-sectors.

 

The Company has oil and gas production in Argentina as well as exploration
assets in both Argentina and Paraguay. The Company has two separate
subdivisions which are focused on early-stage opportunities in the green
and/or alternative energy sub-sector.

 

Activities in the green and alternative energy space are being carried out
under the Green House Capital brand and through AIM listed Atome Energy PLC, a
green hydrogen, ammonia, and fertiliser company operating in Paraguay, Costa
Rica and Iceland, in which MEN currently has 20.5%.

 

With a strong strategic and institutional base of support, an in-country
management team as well as the Chairman whose interests as the largest
shareholder are aligned to those of its shareholders, Molecular Energy gives
UK investors access to an energy growth story combined with world class
standards of corporate governance, environmental and social responsibility.

 

The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulations
(EU) No. 596/2014 as it forms part of UK Domestic Law by virtue of the
European Union (Withdrawal) Act 2018 ("UK MAR"). The person who arranged for
the release of this announcement on behalf of the Company was Robert Shepherd,
Group Financial Director.

 

-ends-

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  NOGGZGGLVDMGFZM