Sdic Power Discussion Threads

[kibes] 05/4/2010 12:54

lagosboy - re your post 807. I'm surprised you are are buying at 0.15. As you say, a capital raising is more than likely and is this going to be at more than 0.15 do you think? In my opinion more likely to be a shedload of shares issued to the big boys and those in the know at 0.05 or less. Better to wait till they have got them at that price and want to offload them to small punters? This is what happens, just look at WKP (5 for 1 issue),CAL (4 for 1) and QED (3 for 1) to see how badly shareholders get diluted. And there is no rush to buy after that sort of issue either, all three have been in the doldrums since.

[lagosboy] 04/4/2010 13:12

ydderf

I am not so sure that the conflict of interest is a great as you are suggesting. Surely it is JM's best interests for SDIC to prosper in order to maximise fees payable to SYG. The collapse of SDIC would take SYG with it most likely. SYG also has performance fees but the estate valuation has never reached the threshold to trigger these.

JM investment in SDIC has dropped from a peak valuation of some €16 m to €5 m approx. Likewise SYG share price has also fallen significantly so I am not sure that you final comments are bourne out by reality.

The arrangements were all in place from the get go, it is up to investors to evaluate them and form their own opinion. These were not hidden arrangements & it was not difficult to multiply the estae valuation by the fee %.

Selling properties is complex, there are I believe 4 major loans and within the loan structure in question are a further 35 or so SPV's. Selling the better properties as a quick fix will leave the estate compromised going forward in my view and indeed the NAV realised may not be sufficient to address the covenant issues as they are SPV and loan specific so cross subsidisation not so simple and it could prejudice other lenders security.

The problem is that the rental income generated from the properties supporting the SPV loans is now falling short, the managers fee is not the issue for the banks.


My view is that a capital raising is the best option. The market is already beginning to price it in and over the long run it would be the most sensible approach to take.

I would like to see this in conjunction with management changes and an amendment in the Managers Fee contract to properly incentivise all parties.

I have to say that presumning you hold SDIC, that given your views, why did you invest?

[lagosboy] 04/4/2010 10:34

ydderf

When you invested in SDIC,I presume the fee arrangement was already in place, why did you not question it then & why did it not deter you from investing?

I didn't hear anyone complaining about SYG when SDIC was 40 cents plus a share.

I don't particularly like the arrangement but it is distraction from the bigger issue, £7m does not plug the hole & an alternative manager would still be needed.

[davidosh] 03/4/2010 21:46

I am copying the most useful information over to here for discussion as the iii site is difficult to see threads. If anyone complains I shall remove it. Thanks of course to goldenarrow1...

Although the results did not bring any news I found really useful the reading of the half year report, it was really very detailed.

. The main problem of SDIC is that they need to amortise every year 1.6% of 1.2Bn of their loans which makes 19M euros a year. With FFO negative and an uncommitted cash available of 25M you see that the company has enough cash for 1 year after it will run out.

=> that is why they have to sell some of their assets to get out of this. The problem is that selling a home is a long process and it is not guaranteed that it can be done at a profit to NAV.

. the DSCR covenant is there to make sure that SDIC can repay part of its loan based of its rents. The problem is that with the refurbishing process the rents ahve gone down and so the ratio. hence the expecting breach.
A breach in itself is not catastrophic as long as SDIC can pay the amortisation schedule. cf this sentence from the annual report

"that, in other cases where the amortisation requirement is not being met by operational cash flows, but where no actual payment default has occurred, discussions have been held with the lenders. In the event that a payment default occurs and no satisfactory waiver or renegotiation of terms is obtained, the risk remains that the lender enforces its security with a consequent loss of net equity."

Let's see the different options;

1) Right issue the company would need 50 M€ to last until 2013 without any sell off of property. that is quite a lot of money for a right issue especiallly for REIT therefore I doubt the company will be able to get this amount on the market.

A RI at a 50% discount would mean the creation of 700 M shares which would triple the current amount of shares. The nav would be 0.65*1/3+0.08*2/3= 0.27c per share

2) The company defaults on the loan and stops payments than the company would lose its equity in the silo. As the debt represents 25% of total debt, the company could lose 25% of net asset value that would put it to 0.43c per share.
That could be an easy and non painful solution.

3) The renegotiations of the different loans and the regroupment into 1 loan that is in IMHO the solution SDIC are heading towards. but this will have renegotiation costs as well as interests costs. It might take time to achieve a consensus on it.

4) Sale of one of their loan portfolio at a big discount to one of their competitors or ongoing sale of some of their buildings. This seems a vhoice of the company as according the report "Since period end, the Group has reclassified a further eight properties to assets held for sale with a carrying value of €8,046,000 at 31 December 2009. These sales are currently under negotiation with potential buyers." This could give the company sometime to improve efficiencies.

As a conclusion, i would say that the situation at SDIC is not catastrophic but will create lots of volatility into the share price

According to my estimations the company has enough cash for 2010, any decline of the share price to 0.1c is a buy and any increase above 0.2c would be a sell.

[lagosboy] 03/4/2010 15:11

Forgot to add, some good analysis on the SDIC civenant breaches on iii, situation complex.

[lagosboy] 03/4/2010 15:10

jeffian

From memory I think called SDIC right well before many others.Well done and you are absolutely correct about the perils of simply following so called Masters of The Universe.

But lets be honest here, would we do things any differently to them, I guess we will never know.

[davidosh] 03/4/2010 14:48

jeffian....totally agree although I only hold VLK. Bob Morton has certainly added very little value there and it has been a serial disappointer for the last three years. I often think some of these guys spread themselves out too thinly and JM must be involved in tens of companies listed and unlisted where he is supposed to be on the board and helping the company. I think other directors probably relax off and do very little and as you say JM will no doubt look after his own interests.

[jeffian] 03/4/2010 12:41

Slightly off-topic, but davidosh's 808 certainly rang a few bells with me. Beware following rich men on the basis that you will pick up crumbs from their overflowing table! Besides Mellon, followers of the Reuben brother and Bob Morton have cause for complaint. Bob Morton is variously described as a "serial entrepreneur' and a "shrewd investor" (copywright Citywire!) but here's just a handfull of his recent ventures


Besides universally starting in the top left hand corner and ending bottom right, note how many end up at, or close to, 0!

[lagosboy] 03/4/2010 12:07

Davidosh

Bill worth a look, I think power struggle going on behind scenes.

It has a potentially blockbuster product in Bill2Phone, allows people buy digital content over the internet and charge to their monthly phone bill.

ie. when you set up an Itunes account a Bill2Phone icon with passwords etc appears as a payment option along with all the usual suspects, credit cards, bank details, paypay etc.

$100 credit limit currently allowed.

25% of Americans don't have a credit card & following recent events many would prefer not to use them at all, due to the high charges. People are also ever more concerned about passing over their bank details due to security risks so has some real factors in its favour.


Merchants are happy to welcome as many payment options as possible as this reduces abandoned shopping baskets.

There are some speculative postings on how much business B2P is already doing, take these with a pinch of salt until confirmed but the company has recently headhunted 4 sales managers for the Bill2Phone product.

The core business although flat lining is cash generative and I think worth a premium to today's current share price.

That's my view but as always DYOR.

I think to expect JM or any other businessman to act in an altruistic manner is naive. I am old cynic and I doubt that many would approach things differently to JM given his wealth and success. In the case of SDIC and SYG, JM has put his balls on the line and he has suffered more than most following recent developments. I am not sure that anyone is making out he is an investors champion, but there are some that like to lick the boots of the super rich. On balance, JM avoids the limelight and publicity so I don't really see him as the enemy within. Just my view.

[davidosh] 02/4/2010 22:51

Blimey it is unusual to see directors blocking individuals when they have 30% like that....What do they fear ? I have never looked at BILL.

I am currently involved in shareholder action at a company where a 10% holder is likely to get on the board if he wants to and that company has seen its share price double over last few months. The JM factor cannot be seen as a bonus then for sure.

[lagosboy] 02/4/2010 21:38

I agree davidosh, it has been a disaster and his ranking on the Times Rich List bears testament to this.

Perhaps his dogs and marathon running are of greater interest to him these days as the years pass by.

I currently have a postionm in BILL another company in which JM owns 30%. I hope for good things there, incidentally management have refused him a seat on the board despite his 30% holding.

[davidosh] 02/4/2010 21:21

Jim Mellon

He is currently co-chairman of Regent Pacific Group Ltd
and Emerging Metals Limited, a director of Charlemagne Capital Ltd, Polo
Resources Limited, Speymill Plc, Speymill Deutsche Immobilien Plc, Webis
Holdings plc, Manx Financial Group Plc, Burnbrae Group Limited and various
other investment companies.


At five of those shareholders have lost considerable amounts over the last two years

From the information posted above I had a quick look at most of those companies where Jim Mellon has been involved and it looks a dire performance over the last two years. Why is everyone making out he is the investors champion and does well for shareholders if this is typical and of course we are seeing the result of his inaction here at SDIC.

[lagosboy] 02/4/2010 19:45

schrubs

As Tesco says, Every little helps.

I feel this is very sick company & now in need of major surgery, amputation maybe a short term fix but it compromises future health.

I can not see a capital raise being avoided & market seems to be pricing this in. Sometimes some short term pain works out better in the long run.

Good luck, I bought a few thousand again at 15 cents, should have taken my own advice and waited for sub 10 cents. I remember the days when it went through 40 cents and I was still keen to keep buying. Fortunately I sold out at 36 cents as the slide started. Still, not really what I wanted or expected from JM.

Cheers Schrubs

[scburbs] 02/4/2010 17:29

Happy Easter Lagosboy and all those unfortunate enough (so far!) to be SDIC investors. I am still expecting SDIC to be very profitable for me, but clearly more patience is needed!

As part of the bank refinancing it is likely that the bank will insist on a cut in the fees paid to SYG (these payments going to SYG directly impact on their security/cover ratios). There are lots of precedents for fee reductions and at 0.85% GAV (plus the Goal fees and fees for managing the refurbishments) they are substantially over market rates.

I would expect them to be cut to between 0.45% and 0.6% GAV. This would save between €3.5m-€5.6m which would be a good start.

[lagosboy] 01/4/2010 19:05

Davidosh, just for you, the extra mile & you nearly lost me dosh on LNG !!!!!

Cheers


Management Team

James Mellon Chairman
An entrepreneur with a flair for establishing successful companies around the globe, James Mellon holds Directorships with several investment companies and is a beneficiary of a Trust which owns the Burnbrae Group. He is the founding and principal shareholder of the Regent Pacific Group Limited with approximately US$ 100m of shareholder equity (31/3/03). He is founding and principal holder, and non-executive Chairman, of Charlemagne Capital Limited with approximately US$ 3bn of assets under management (31/12/03).

[lagosboy] 01/4/2010 19:01

davidosh

44% directly in JM name

40% by Burnbrae which is a JM company.

In fairness to JM he has sunk a lot of money buying stock in SDIC at prices well north of today's close.


Thanks very much schrubs, that is certainly enough for me to stay.

Happy Easter & schrubs/davidosh I respect your views & fully appreciate that money has been lost here. We always need an opposite view on certain things whether or not it is correct.

[scburbs] 01/4/2010 18:21

P30 in the attached link. Management agreement can be terminated with 12 months notice such notice not to expire before 30 June 2010 (hence the danger of valuing the manager on a multiple of profits basis as I flagged before).

[davidosh] 01/4/2010 18:03

lagosboy....Where do you get the 80% ownership of SYG figure from ?

Are you suggesting SDIC put out inaccurate information in their RNS ?

Mr Mellon is a director of and an indirect 44.8% shareholder of Speymill plc, of which Speymill Property Group Limited, the Company's manager, is a wholly owned subsidiary.

[davidosh] 01/4/2010 18:03

Incidentally ..the value of his shareholding in SYG is peanuts compared to the value of his holding in SDIC. The ability for profits to be achieved by one at the cost of another is a different story ??

If you have profits is it better to see 44% of them in your pocket or 14%?

So many questions and never a director available to give any answers ?

The institutional holders need to get active unless they fancy putting in millions to avoid dilution.

[lagosboy] 01/4/2010 17:49

gary1966

That's fine, I am not against that at all, the major shareholders and bank can force this issue if they see fit. I don't know the detail of the contract, I can not believe howvever that JM as owner of 80% of SYG directly and indirectly will not have some protection built in.

$10 million does not solve the problem and it would be less than that as a manager would still be needed and paid for, albeit I suspect they would be far cheaper.

I see the SYG as a distraction from the core problems. Don't forget that SYG has a strong vested interested in the success of SDIC, % of estate valuation plus preformance fees (which have never kicked in ).

From today's close at 13.25 cents, looks as though the market is already pricing in a capital raise of some kind.

[gary1966] 01/4/2010 17:18

lagosby,

If we get rid of the parasite that is SYG then the business would be cash generative.

This is one of the major issues that needs to be resolved now. I just hope the silver lining of the discussions with the banks is that they force this change.

[jeffian] 01/4/2010 16:31

"...the best money to be made in German Real estate was in buying bombed out property companies, which were over leveraged, over ambitious on the operational side and reliant on overly optimistic projections of capital growth."

Errrrm.....SDIC?

8-)