Insider Trader:

The GNS announcement suggests they’re not going down without a fight.

The FOREST hybrids were always an obstacle to raising more capital, particularly since they stopped paying quarterly interest.

There were always limits on the number of ordinary shares that could be issued at conversion date (ie when the Directors decided to convert the hybrids to ordinary shares).

With a share price of 16 cents the FOREST holders should have got 750 million shares for the hybrids that had a face value of $120m in total but they only got 506 million worth $80 million on the last trading price, probably a lot less if the shares ever trade again.

The hybrid holders won’t be happy.

Off to read the fine print in the original offer document I expect.

• David Obendorf:




Gunns Ltd FORESTS notes converted to Ordinary Shares

Turning FORESTS into chips

On 9 August 2012, John Lawrence in his Tasmanian Times article:[i] The Second Coming is more likely…[/i]

told us:

‘The latest announcement suggests Gunns’ net assets are possibly a negative $150 m if the 1,200,000 of hybrids are counted as debt, and a negative $30 million if the hybrids are considered as equity.

The hybrids usually referred to by the acronym of FORESTS (Frankable Optionally Redeemable Equity Settleable Transferable Securities) are similar to Gunns’ ordinary shares because they are listed on the ASX but pay a regular quarterly return, or at least they did until a month ago [July], like a bond or a term deposit. This and the fact that hybrid holders were entitled to a full redemption at face value ahead of ordinary shareholders in the event of a wind up, was the attraction for investors.

But if Gunns’ net assets are a negative $150 m counting the FORESTS as debt, this means that the first $150m of additional shareholder contributions will simply benefit the FOREST holders as a de facto donation from ordinary shareholders to FOREST shareholders.’

Late on 29 August Gunns Ltd CEO Greg L’Estrange issued with following notice to the ASX [Factfinder – Thank you]:

GUNNS LIMITED price history chart


‘The Directors have resolved to effect the conversion of FORESTS notes to ordinary Gunns shares. The company currently has 1,200,000 FORESTS notes (GNSPA) on issue. The conversion is expected to result in the issue of 506,040,000 Ordinary shares…. The Ordinary share issued will be confirmed on 15 October 2012, the Exchange Date, at which the conversion will occur.’

‘Based on the most recent trading prices of Ordinary shares (prior to the suspension of Ordinary shares from the quotation on 13 March 2012), it is expected that you will receive 421.7 Ordinary shares for [b]each[/b] of your FORESTS notes.’

‘Given that theOrdinary shares have been suspended from quotation since 13 March 2012, no current trading price information is available.’

‘The latest available market price of the Ordinary shares was their closing price on the day of their suspension, which was $0.16. In the three month period prior to their suspension, the Ordinary shares traded at a low of $0.096 on 12 January 2012 and a high of $0.205 on 16 February 2012.’

The Company announcement informs FORESTS holders that ‘no distribution will be payable’ on the FORESTS notes for the period to 14 July 2012 and the period to 14 October 2012.