On Monday it was reported that a £40 million offer from RockRose Energy to buy the debt Independent Oil and Gas owes to London Capital & Finance had been ignored by LCF’s administrators, Smith & Williamson, frustrating RockRose to the point they threatened legal action.
S&W briefly commented on the offer when they released their initial proposals for their administration of the FCA-authorised Ponzi scheme on Wednesday. They said only that the offer had been rejected while they try to determine the true value of the debt, and the conversion rights and warrants attached to it.
Independent Oil and Gas has now spoken out to describe RockRose’s £40 million offer as “derisory” and claim the loan should be valued at £57 million, despite the amount owed to LCF by IOG being only £38.6 million (including interest).
The reason the debt can apparently be worth so much more is because it contains the right to convert the debt into equity. Exactly how much equity is what both RockRose and Smith & Williamson are trying to find out.
While £40 million in cash sounds like a great result for LCF’s stricken bondholders, S&W remain under a statutory duty to maximise recoveries for creditors. So if IOG are right, and the debt is in reality worth £57 million, S&W are quite right not to bite their arm off.
But not, in my opinion, to maintain radio silence to the point that RockRose threaten to go legal.
IOG may think that the debt and its conversion rights are worth £57 million, but this opinion is apparently not shared by the market, which currently values the entire existing share capital of IOG at £23 million. The ongoing uncertainty over the conversion rights means it is not clear whether and to what extent this share capital is potentially diluted by the LCF loan.
The decision is any case not IOG’s. S&W, via LCF and London Oil and Gas, own the debt, and, if RockRose is correct in their guess about the conversion rights, IOG’s backside on a plate.
The potential sale will continue to come under scrutiny. As IOG is a publicly listed firm, it is one of the few investments owned by LCF which can be independently valued, and S&W has consistently said that it represents the most likely chance of recovery.