I'm relieved. The problem with pissing contests is that no matter how far up the wall they soak and no matter who wins, they still make the place smell.
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I will apologise for the part I have played.
I also used to enjoy reading this thread. It was a great way to learn from more experienced investors. Thanks to Maverick, Snoopy and others for sharing your views.
superfluous to requirement
It matters because under a 'new capital raising scenario', existing shareholders will have their capital diluted more than shareholders who 'come on board' after a capital raising is announced. Let me explain. Both shareholder groups will get their shares at a 'discount to asset backing' (if that is important, I'll have more to say about this later). But those who 'come in late' will in effect get a greater discount, because market prices for shares tend to reduce as a capital raising is announced. Coming from a pre-capital raising position viewpoint, an existing shareholder may feel smug holding shares at a price less than net asset backing. But what I am saying is that the discount to asset backing of the shares they hold may be less than they think. That is because shareholders that come on board later will get a greater discount price on all the shares they will own backing those existing company assets, post capital raising.
To address SR's point, it is true that all shareholders will pay the same price for new shares in any capital raising, and the capital raised will be in proportion to the size of a shareholding held before. That point is not in dispute. But I am looking at the average price for all shares held by any shareholder after a capital raising is completed. The price of the qualifying head shares used to gain the new share entitlement will be different, with those coming in late paying less for their qualifying entitlement shares. Paying less for their qualifying shares means that post the capital raise the average price paid for all their shares will also be less than the average share price paid by the longer term shareholders, even though it is also true to say that the net asset backing for all shareholders will be reduced (because the new shares have been issued at a price below net asset backing).
If you understand that post capital raising those newbie shareholders will have paid less for their shares on average, then it shouldn't be too much of a stretch to understand where this 'greater discount' has come from. It has come from the existing legacy shareholders, who have given some of the discount they thought they owned relating to net asset backing of the company, away to the newbie shareholders.
SNOOPY
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Can someone confirm for me also that the $400M bank loan is uncallable unless OCA doesn't meet it's repayment obligations or breaches its covenants which are as follows:
The financial covenants in the Group’s debt facilities, with which the Group mustcomply include:
a) Interest Cover Ratio – the ratio of Adjusted EBITDA to Net Interest Charges, where
interest charges relates to the interest and commitment fees in relation to the
General Corporate Facility, is not less than 2.0x;
b) Loan to Value Ratio – the ratio of total bank indebtedness shall not exceed 50%
of the total property value of all Group’s properties (including the “as-complete”
valuations for projects funded under the Development Facility); and
c) Guarantor Group Coverage – at all times the adjusted EBITDA of the
Guaranteeing Group must be at least 90% of the Adjusted EBITDA of the
total tangible assets of the Group; and
d) Development – at all times the outstanding principal amount under the
Development Facility shall not exceed the Development Value. Development
Value (per the most recent valuation excluding any settled stock) is the aggregate
value of all Residential Facilities in all Developments that are being funded by the
Development Facility less their cost to complete.
Why does this matter? Wow!
Why don't all companies just dilute existing shareholders continually.
Put it this way.
Would you rather OCA had debt of circa $500M or raised equity to the current value of the company?
If this company is to perform as you say, which is the more expensive option?