I suspect they started off on the wrong foot, thinking it would be more straightforward than it proved, and then for the usual reasons couldn't back out. |
In a short time, this thread seems to have gone from looking forward to major contract signings and being confident that SRT hasn’t got any competitors tendering, plus looking to the future with multiple contracts, to doubts about everything.
There have been many chances to get out, if anyone had got nervous about prospects or analysed the likely business requirements to fulfil contracts and didn’t like the look of it.
I’ve had SRT shares since goodness knows when, but the details of OI’s shareholding, the placing etc etc hasn’t put my nose out of joint.
Biggest disappointment would be an early takeover, but I don’t think that I deserve anything particular for holding such a long time. It was my choice. I’m not under any illusion that any company will put my personal wants before its own requirements to get the job done.
If it turns out OK, this week will be forgotten quickly. |
I didn't think of that, Super. An elegant and simple solution. No doubt the contract is in very separable milestones in any case. |
LV - I would much rather they'd split the contract into two or three tranches. That would have achieved all the same end goals without the current (entirely justified) hand-wringing.
And yes, I know it's easier said than done, but I remain somewhat baffled as to why such a Gordian knot-cutting approach couldn't have been managed. |
LaV, what you write suggests that there's no added value in the relationship with OI beyond this one Kuwait contract. For my part I don't believe that's the case:
- inflow of immediate £7+m hard cash
- doubled if, as, and when OI exercises its warrants
- backing of a strong shareholder (or at least one perceived to be strong) will discourage lowball bids
- OI CEO now on SRT board as nonexec, admittedly unknown quantity but generally seems to be considered positive;
and most of all
- OI technical [subsea] support for future system contracts etc, as well as potential further financial backing if required
We can debate ad infinitum whether or not the relationship with OI is good value for money, but it's certainly not one-way traffic - not all cons and no pros - as you seem to imply. |
If you look at the thing in the round, SRT has sold 20% of the company and incurred $21 million of debt to get this contract. At a 20% margin is that worthwhile? 30%?
I would much rather they had stalled the Kuwaitis until they had cash inflows from Indonesia and Saudi. If the counter argument is that Kuwait would have shopped elsewhere, that doesn't say much for SRT's system
I get C5's argument that this will lead to more work in the region and if they didn't do it their regional hopes would be unlikely to materialise, which again does not say much about their system. |
An export credit agency would normally have its own internal progress check requirements, before it was allowed to sign off on any re-distribution of credit risk/responsibility.
UKEF is also a party to the other (delayed) contract signing. Have they been the ones foot-dragging there - Indonesia being /becoming dependent on Kuwait?
Who knows?
But if ST and SRT hope to remain independent, they must surely see that this may be a drink at Last Chance Saloon and will be busting a gut to get it right this time.
AFAICS
GLA |
hfs
It also appears that there is some confusion between the bond amount and the cost of the bond. Unless I’ve got it badly wrong, the whole purpose of the bond is to insure the customer and the contractor. In this case the cost is just expensive for SRT and indirectly for its shareholders as a result of dilution with OI shares. |
You're getting a little tiresome now.Sovereign state issue $213m contact to a UK based £100m company, of course they were going to ask for some form of guarantee (performance bond) as SRT have not yet completed such a project.Would you prefer we turn down the contact due to the performance bond and the execution risk ?You could look through a different lens, if we deliver OTOBOS we get the bond back. |
It would be nice to see plucky little UK businesses fighting their way gradually to greatness with full backing from the investment community, but we’re too conservative and today’s world isn’t like that.
No good blaming the companies.
SRT is aiming at big contracts - that isn’t a gradual process and working capital is a nightmare to manage.
There were only three options - being taken over before signing any contracts (unlikely), get a large investor, or make a big placing a while ago (imagine the complaints). |
No doubt you are right Extrader. Who gets to confirm failure to deliver or perform?
What would happen if say UKEF was pondering whether to step in as guarantor of the bond in six months time and no performance at all had happened on the contract with a two year implementation period? They would probably ponder some more and for them pondering for two years doesn't seem a stretch. |
A PB is typically called at the end of a contract, on confirmed failure to deliver goods/ perform to spec...which wouldn't be known until a fairly late stage.
At least in my (dated) experience.
On site visits to road construction contracts (%age completion stage payments) it was common to be able to drive 50 to 80 Km along completed road..and then have to drop down to cross (slowly) a riverbed :
the (value-adding) bridge completion being dependent on other stage payments being relatively up-to-date.
GLA |
pidazzle
That is the $21 million I am on about. Any hiccoughs on the Kuwait contract and that $21 million is lost, whether it is replaced by a UKEF guarantee or not. Who knows whether the performance bond includes a time element but if it does then woe is us. UKEF is providing the assurance to Kuwait not SRT and if Kuwait call the bond SRT is on the hook. |
 LaV - I was under the impression that OI have SRT's back?
"OI has provided a $21.4m guarantee to SRT to enable SRT to issue a contract performance bond of similar value. The OI guarantee is initially provided as a cash loan of $21.4m with an interest rate of 0.75% per month. The loan is expected to be repaid by SRT with a period of approximately one month and replaced with a bank guarantee on OI's behalf. The OI bank guarantee itself will then be replaced within the next 6 months using a combination of SRT's own resources and UKEF export guarantee program. In return for providing this guarantee, OI is being granted 20,000,000 warrants at a strike price of 35p, with an exercise period of 3 years, which when exercised will inject a further £7m equity for SRT. In the event that SRT does not replace the OI guarantee within 8 months, a further 4m warrants per month will be issued with a strike price equal to a 15% discount on the share price at the relevant time."
Certainly it's exceedingly complex, and by no means cheap, but it seems to work.... |
But liquidity is still a major issue. Even if they get their hands on the £7.5 million today (can they actually use it pre approval at the general meeting?), they will probably be strapped by end February because of purchases for the Kuwait contract. And if they balls that one up, that is $21 million gone and owing to OI. |
I regard the presence of OI as beneficial on balance. It has been suggested that not just their financial support, but their undersea technology, has contributed significantly to SRT winning the Kuwait contract: if that's the case, then it seems a fair assumption that the same will apply to other prospective system buyers.
For me, then, the long and short of it is this:
a. NEXUS, to be launched imminently, should henceforth enable the non-systems side not only to wash its face but to cover most or all of the group's admin costs;
b. We have still to see what DAB can achieve - while it's rather disappointing that no major contracts for this have yet been announced, presumably there are still good prospects, does anyone have a handle on progress?
c. We have Kuwait $213m, Indonesia $180m if and when it happens, plus a handful of other system contracts both actual and expected. If we assume system sales averaging say $80m a year over the next four years, at what I hope is a highly conservative 20% gross margin, that would mean $16m p.a. pretax from 2025-26 onwards. Tax will be reduced because of historic losses (and hopefully, thereafter, because of the patent box, though who knows). Current market cap, pre-dilution but post the placing, looks like c£100m. I recognise that success will depend heavily on efficient execution of the contracts. On the other hand, liquidity should no longer be a major issue - again, like it or not, this is largely down to OI - and the momentum is now flowing. |
Supernumerary, I was in a similar position to you. Most of my SRT shares are held in a Barclays SiPP and Barclays, one of the largest retail brokers, were not participating. The only shares I could bid for were in an ii ISA which I was unable to add funds to, So, I end up getting an extra 1% of my SRT shares to add to my holding and not 10%.
This sort of bookbuilding Retail offer does not work for most retail investors. I believe a Retail Open Offer/Placing with the option to oversubscribe could have raised many times the paltry £0.95m raised. |
Anything world beating that we have will be subject to VC shareholdings and/or takeover in one form or another because we just don’t value it enough.
You can tell that from the crazy push to get dividends from small growing companies, instead of reinvestment.
Shame the UK can’t sell pen-pushing to the rest of the world. |
I increasingly think that there will be no long term for us shareholders. It is not up to the CEO to decide that sort of thing in any case.
I think it is much more prosaic than that. Apart from OI, they have been unable to raise any money from outside investors for at least the last two of many fund-raisings. But they insist on running out of money regularly, so much so that Brierwood has realised that his debt has seasonal equity characteristics.
Whatever they have agreed with OI this time, it is probably ultra vires. That will be washed at the general meeting. |
Maybe for ST ensuring a pole position for OI is the best long term option/succession. The fundraising then a way of moving in that direction. |
Big ears is supposed to be giving tea to Prabowo.
C5
Re the bond, I think it was perfectly within SRT's capability to negotiate a contract which started later, particularly if their system is as good as they say and the competition nowhere near and if they were confident about the cashflows from Indonesia and Saudi. |
I imagine that it wasn't only the 'soft limits' that affected uptake. I hold over 3 accounts, but when I checked only 1 of them was handling the offer, and since that was a non-ISA account I didn't feel like adding to my holding and potential tax liability. I can't be the only one who didn't participate for logistical reasons.
CM - I remain nervous of OI's interest - it's becoming overweening. It would be interesting to know what part they play in current projects, if only because any slip-up will cause another need for cash, and hand them even more power.
BTW I didn't notice any comment on this:
Bahrain activists criticise UK over King Hamad's honorary knighthood
Seems Charlie's playing his part too. |
I’d love to see any suggestions on how SRT could have funded these large contracts, other than diluting shareholders previously at a higher price.
Of course at that point, given no major signings, a big “insuranceR21; placing would have I’m sure been greeted with delight.
If anything of that size was possible in such a poor general market.
Perhaps someone who has actually run a business like this would care to comment. |
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