Major dilution for Magnus Energy from convertible notes

APPARENTLY toxic convertible bonds issued by Magnus Energy have continued to pummel the micro-penny stock, which fell 25 per cent or S$0.001 to S$0.003 on Thursday.

The latest major dilution to the stock has come courtesy of convertible notes of the oil and gas equipment distributor issued in 2014 to the Premier Equity Fund managed by Value Capital Asset Management.

Value Capital Asset Management's stake in Magnus leapt from zero to 12.74 per cent on Thursday after Value Capital converted S$750,000 worth of notes into about 288.46 million shares on the same day at S$0.0026 apiece, Magnus said in a Singapore Exchange filing on Thursday evening.

The conversion price was calculated by taking a 10 per cent discount to the average traded volume-weighted average prices over any three consecutive trading days selected by Value Capital, out of the 30 trading days immediately preceding the conversion date.

Just around a week ago, Value Capital's Premier Equity Fund had ceased to be a substantial shareholder in Magnus on April 15 when it sold off 24.3 million shares on the open market, bringing its stake down from 5.22 per cent to 3.92 per cent based on a total share capital of 1.88 billion shares. It did not disclose the April 15 sale proceeds in its bourse filing.

Conversion to shares at a discount, rather than the usual premium, is a hallmark of toxic convertible notes, which are often a last resort for small cash-strapped firms. The subsequent "convert-and-sell" cycles can badly erode the share price.

A group of Magnus shareholders in March this year asked the company to convene an extraordinary general meeting with a view to removing all current directors and to nominating replacements, and also requested that the company not issue any new convertible notes.