IGas Energy PLC keeps digging as CEO Austin defends Equity First deal

Today’s underwhelming interim results from IGas Energy PLC (LON:IGAS) were followed a few hours later by a second RNS, defending the IGas chief executive Andrew Austin’s share sale and repurchase deal with Equity First Holdings, of Quindell fame.

My jaw dropped as I read the RNS — IGas must really think its investors are mugs (a bit like Quindell, come to that). Here are a few highlights:

Under the terms of the ‎facility with EFH announced on 16 January 2014, Mr Austin transferred  a total of 7.5 million shares to EFH and received the net sum of £7,009,533, equivalent to 93.46p per share transferred under the agreement. Mr Austin both fully intends and is required to repurchase all of these shares at the end of the three year term, by repaying the facility at a cost of £7,899,870 equivalent to 105.33p per share.

He intends to repurchase the shares, but since the shares themselves were Mr Austin’s only security for the deal (see here), what recourse does EFH have if Mr Austin decides not to repurchase them? Probably none, I’d suggest, making the obligation to repurchase somewhat flimsy…

Furthermore, why would anyone in their right mind repurchase the shares at 105p when they can be bought in the market (as I write) for 58p?

Whilst Mr Austin has transferred title to the shares and waives his voting rights in these shares, he has the right with five business days’ notice in the event of certain corporate actions, to terminate the arrangement and on repaying the facility to take back and vote the shares

This is rather like me saying that I’ve waived the right to use the car I sold last week. Honestly — you can’t waive the voting rights to shares you don’t own: you don’t have any voting rights.

As regards buying back the shares in the event of a corporate action, I’d suggest he wouldn’t have entered into this agreement if he thought a takeover bid was even remotely likely. Furthermore, in today’s market he could lock in a big capital gain and regain his voting rights by buying the shares back in the market. It would be crazy, as I mentioned above, to buy back the shares from EFH.

It gets better:

Whilst the facility is contracted by way of a sale and repurchase agreement, the arrangements are treated as a loan from an accounting and taxation perspective.

I know that accountants are paid to cut your tax bill, but surely having your cake and eating it in this way just isn’t possible?

Anyway, I’ve saved the best for last (my emphasis):

As a result of this and subsequently disclosed further acquisitions, Mr Austin has an interest for disclosure purposes in the voting rights attaching to 10,967,075 Ordinary Shares representing 3.7 per cent of the issued ordinary share capital of the Company, which includes the shares transferred to EFH under the sale and repurchase agreement (as a result of the buy-back obligation).

Assuming Mr Austin’s contract with EFH is similar to those of Messrs Terry and Moorse at Quindell, we got a taste of how effective the EFH buy-back obligation is this morning, when Quindell issued the following statement on behalf of Mr Moorse:

Laurence Moorse has informed the Company that he received a notice of margin call under the agreement with Equities First Holdings LLC (“EFH”) … Mr Moorse did not meet this margin call which, consequently, has led to the termination of the Agreement.  As a result, his right to repurchase 200,000 ordinary shares of 15 pence each (“Ordinary Shares”) transferred by him to EFH under the Agreement will be terminated with effect as of today.

According to Quindell’s earlier RNS, Mr Moorse was “required to redeem the transferred shares”, Yet all of a sudden, the “loan” agreement has been terminated, and Mr Moorse is free to keep the proceeds, without further recourse. Quindell also issued a near identical statement on behalf of Rob Terry this afternoon. He too has teminated his agreement with EFH following a margin call.

If this is the kind of “buy-back obligation” that Mr Austin is subject too, then his claim to have an interest in the shares he has sold to EFH is questionable, in my opinion.

Disclosure: This article is provided for information only and is not intended as investment advice. The author has no interest in IGas Energy and a short position in Quindell. Do your own research or seek qualified professional advice before making any trading decisions.