Économie et Finance

Alliances, a surprising lack of info

le 5 juin 2018

Done deal! The convertible bonds, rolled over by Alliances in 2015 and maturing 30th April, have been converted into equity by the real estate developer.

A simple notice published by the Casablanca Stock Exchange on 2nd May recounted this transaction, which took place on 9th May, according to the Stock Exchange.

Some clarification is required. The notice in question did not appear on the front pages of the Stock Exchange’s website, where details of the latest financial transactions are posted, such as CIH’s subordinated bond issue, the results of OCP’s perpetual bond issue and dividend distributions at Oulmes and Ciments du Maroc.

To find it, you had to be rather nosy, not to mention being familiar with the ins and outs of the stock market. You needed to go to the ‘Listed stocks’ link on the Stock Exchange’s website, select ‘Alliances’ from among the list of stocks and click on ‘Notices & Announcements’ which would enable you to find the article in question published 2nd May under the heading, ‘Alliances: Capital increase by converting debt into equity!’.

And, what is more, the fact that ADI’s shares were not suspended since convertible bond holders were deemed to possess all the necessary information, there was a blanket of silence.

Specifically, the precise content of the notice, numbered AV-2018-043, announcing the transaction, was as follows: ‘Event: Capital increase by converting bonds at maturity into shares; Stock(s) in question: ALLIANCES.

The purpose of the issue mentioned in the notice was simply: ‘An increase in ALLIANCES’ capital by converting bonds at maturity into new shares’, stipulating that:

‘In view of the provisions outlined in the prospectus relating to the issue of bonds which may be converted into new ADI shares, as approved by the Moroccan Capital Markets Authority (CDVM) 17/08/2015, reference number VI/EM/023/2015; in view of the decision taken by ALLIANCES’ Board at its meeting 30/04/2018 and, in particular, the resolution relating to carrying out a capital increase by converting the convertible bonds’.

Mention was of course made of the features of the transaction including the type of transaction, which was to convert the bonds held by the convertible bond holders of the company in question into shares.

The new shares were issued at a price of 155.00 dirhams while the conversion rate was 100:155, with each new share having a face value of 100.00 dirhams, the same as that for each convertible bond.

Therefore, for 9,966,000 bonds converted, an investor would receive 6,429,660 new shares.

Or, in other words, a convertible bond with a face value of 100 dirhams, based on a conversion price of 155 dirhams per share, would equate to only 0.64 of a new share.

Applying this rate to 9,966,000 convertible bonds, 6,429,660 new shares would be created on converting ADI’s convertible bonds.

These, added to the 12,648,928 shares prior to this transaction, give a total of 19,078,588 shares following the capital increase, amounting to MAD 1.90 billion of capital.

These new shares, whose an entitlement date is 01/01/2018, will be listed 09/05/2018.

The important thing to remember about this transaction is, first and foremost, that it actually took place and that the bonds, issued by Alliances in 2012 and then rolled over in 2015, were actually converted into shares.

The envisaged conversion price in question, ‘determinable on the basis of a ruling at maturity’, would appear to favour the convertible bond holders who would have received far fewer ADI shares if the conversion price had been predetermined.

As it stands, Alliance’s founding shareholder has seen his stake diluted from just under 60% to 45%, despite remaining the relative majority shareholder. The convertible bond holders who are now shareholders in ADI are somewhat obliged to follow suit and retain their holdings, following the debt restructuring and business recovery, because none of them would wish to sell their shares at a price which is already trading at a discount to the 155 dirhams issue price.

And so, despite the free float doubling in volume, there is unlikely to be any improvement in market liquidity.

This transaction to convert ADI’s debt into equity is simply the penultimate step in the real estate developer’s deleveraging process. A prospectus is in the pipeline for another bond issue which is intended to roll over the outstanding debt as a result of a number of creditors refusing to accept property assets as dation-in payment.

This latest bond issue is expected to amount to more than one billion dirhams and is likely to be ‘guaranteed’. Its prospectus is apparently being reviewed by the AMMC which ought not approve it…

Afifa Dassouli

Original articlehttps://lnt.ma/alliances-suites-de-conversion-ora-actions/