Tag Archives: Royal Imtech

The Dutch Job: Royal Imtech (NL0006055329) Deeply discounted rights issue – The “short opportunity of the century”

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I had written about Royal Imtech, the troubled Dutch service company already a couple of times. The short story: Growth star encounters fraud and too much debt.

Somehow, I lost them from my radar screen until today. Already in August, they announced that they will do another rights issue, this time aiming for 600 mn EUR, after having raised 500 mn in 2013.

The funny thing is the way they actually do this which even puts my favourite “Italian Job” companies at shame:

Following the approval granted by the General Meeting on 7 October 2014, Royal Imtech N.V. (“Royal Imtech” or the “Company”) announces a 131 for 1 fully underwritten rights offering of 60,082,154,924 new ordinary shares with a nominal value of EUR 0.01 each (the “Offer Shares”) at an issue price of EUR 0.01 per Offer Share (the “Issue Price”). For this purpose, and subject to applicable securities laws and the terms of the prospectus dated 8 October 2014 (the “Prospectus”), existing holders of ordinary shares in the share capital of Royal Imtech (“Ordinary Shares”) as at 17:40 CEST on 8 October 2014 (the “Record Date”) are being granted transferable subscription rights (“Rights”) pro rata to their existing shareholdings (the “Rights Offering”, and together with the Rump Offering (as defined below) the “Offering”). No Rights will be granted to Royal Imtech as a holder of Ordinary Shares in its own capital. The Rights will entitle the holders thereof, provided they are Eligible Persons, to subscribe for 131 Offer Shares for every Right held at the Issue Price, subject to applicable securities laws and in accordance with the terms and subject to the conditions set out in the Prospectus. The Issue Price per Offer Share represents a discount of approximately 21.7% to the theoretical ex-rights price (“TERP”) based on the share price of EUR 0.3763 at Euronext in Amsterdam (“Euronext Amsterdam”) after close of business on 7 October 2014 and 458,642,404 shares issued and outstanding at the same date (thus excluding treasury shares

So before the rights issue, the market value of the company was around 0,38*458 mn shares= 175 mn EUR. Today is the first day where Royal Imtech trades “ex rights”. Just as a little refresher the formula for calculating the value of the right (to buy 131 shares at 0,01 EUR) before trading:

(0,3763-0,01)*131/132= 0,3635

So theoretically the price of Royal Imtech should be today: 0.3763-0.3635 = 0,0128 EUR. a little more than one cent.

Let’s look what the shareprice is doing today:

Imtech is trading at 0,09 EUR, around 800% higher where it should trade !!!!! On the other hand, the rights trade only at 0,17 EUR at the time of writing, a discount of 50% to the theoretical value (as of yesterday).

This leaves the question: Why are investors paying today 9 cents for the shares which they can buy via the rights at a little over 1 cents per share in 2 weeks time ? I have no answer. MAybe people (and computers) mixed up the decimals and think the new shares come at 0,10 EUR ?

Anyway, if anyone is able to short Royal Imtech at this level, this would be the short of the century. You can short something at 0,09 EUR today and buy back at 0,01 in a few days. Nothing more to say….

Edit: Might be a good example for any student who is confronted with the “Efficienty markets hypothesis”.

Royal Imtech update: Higher loss & Rights issue

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After last qeek’s first look at Royal Imtech, Imtech came out today with a press release:

The highlights were as follows:

Rights issue will be completely used for debt reduction
Measures to make financial structure more robust
Write-off of 150 million euro for Polish projects
Write-off of 150 million euro for German projects

So this means that the write offs are a lot higher than initially communciated. Back then, they only said “100 mn EUR in Poland”, now we are at 300 mn EUR in Poland and Germany.

In parallel they also reported a change in the CEO positon:

Gouda, the Netherlands – The Supervisory Board of Royal Imtech N.V. (IM-AE, technical services provision within and outside Europe) confirms that in good consultation and in line with the original plan, René van der Bruggen (65) has decided to retire as of 3 April 2013. He will remain a member of the Board of Management until 3 April. He will hand over as Chairman with immediate effect. Gerard van de Aast (55), who is already a member of the Board of Management, is as of now appointed CEO of Royal Imtech and Chairman of the Board of Management

So this could be an interesiting situation. The new CEO will most likely go for a “kitchen sink” approach and write off as much as possible in order to have some “cushion” in the future.

Another aspect is what they say in the first press release:

Royal Imtech N.V. (IM-AE, technical services provider in and outside Europe) announces that the company will strengthen its equity through a rights issue of 500 million euro. The proceeds of the rights issue will be completely used for debt reduction. As a result of this the balance sheet of Imtech will be reinforced

This looks like that the banks have Imtech “by the balls” and could push through the rights issue in their interest. So it is not really a surprise that the share price of Imtech dropped to a new low:

Again, as in the KPN case I would wait until the details of the rights issue are known. With a current market cap of 800 mn EUR, a 500 mn EUR rights issue will require a significant discount.