Ordinary v Preferential shares - impact?

[didds]

A few years ago I bought some shares in GKP - a oil company in Kurdistan listed on the London Stock Exchange.

A chum who similarly invested mentioned last night that as he understood it

"95% of value went to the preferential share holders leaving everyone else holding 5% of value share amongst them."

Now - my (ordinary) shares are worth what the current price is (as of now, 177p).

So what "impact" does that 95/5 per cent thing actually mean? At eventual buy out?

didds

[Alaric]

"95% of value went to the preferential share holders leaving everyone else holding 5% of value share amongst them."

These are the accounts
http://ir1.euroinvestor.com/asp/ir/Gulf ... 4&ishtml=1

There's no reference to preferential or Preference shareholders.

It's listed on the LSE so would have to comply with the usual rules, so undisclosed distribution rules should be a no no.

[maximan]

Hi didds
The shares were consolidated on a 1 for every 100 basis.I believe the pref shares or bond holders mostly converted, but in anyway ordinary shareholders were treated as I have said.

[PinkDalek]

"95% of value went to the preferential share holders leaving everyone else holding 5% of value share amongst them."

These are the accounts
http://ir1.euroinvestor.com/asp/ir/Gulf ... 4&ishtml=1

There's no reference to preferential or Preference shareholders. ...

Looking at those accounts finds Preferred shares mentioned in note 19, together with a share consolidation during 2016. Which looks precisely like the 1 for 100 mentioned by maximan.

The completion of the share consolidation is described here:

http://www.londonstockexchange.com/exch ... 63416.html

I haven't looked further but this doesn't appear to relate to the Preferred shares.

[Alaric]

Looking at those accounts finds Preferred shares mentioned in note 19, together with a share consolidation during 2016. Which looks precisely like the 1 for 100 mentioned by maximan.

Share consolidation is a normal practice and doesn't usually result in any great shift of value, unless necessary because of a near failure of the Company.

In any event, it's in the past, so whatever shareholding adjusted for the consolidation is held today, it's worth whatever the price is and the performance is the comparison to whatever was paid at outset.

The Company was originally based in Bermuda, which may account for the use of the American term "Preferred Shares" rather than the British term "Preference Shares". They are a hybrid being partly shares and partly a borrowing. They are likely to get a fixed first cut of distributed profits, but ordinary shares get the rest, and a first fixed cut of assets on liquidation. They also don't get many voting rights.

The capital structure of this Company does seem on the complex side but that doesn't in normal circumstances affect an investor who knows how many shares they have and how much each can be sold for.

[didds]

Thanks all.

So whether I were to sell them personally, or there was a future buy-out I'd receive the current share price/offered share price for my ordinary shares, yes?

(Sorry 0- I'm trying to get my head round it all still

didds

[Alaric]

So whether I were to sell them personally, or there was a future buy-out I'd receive the current share price/offered share price for my ordinary shares, yes?

Shares listed on the LSE all work that way. The price you might be offered on a buy-out is going to be influenced indirectly by the Preferred Shares, since their rights would need to be satisfied.

[maximan]

Thanks all.

So whether I were to sell them personally, or there was a future buy-out I'd receive the current share price/offered share price for my ordinary shares, yes?

didd
s

Yes that's right.
At today's price of circa £1.76 that's 1.76p per share before consolidation

[PinkDalek]

... The Company was originally based in Bermuda, which may account for the use of the American term "Preferred Shares" rather than the British term "Preference Shares". ...

That might be so nowadays but I held Preferred stock in Peninsular & Oriental Steam Navigation Company back in the Eighties (as well as Deferred Stock).

[didds]

... The Company was originally based in Bermuda, which may account for the use of the American term "Preferred Shares" rather than the British term "Preference Shares". ...

That might be so nowadays but I held Preferred stock in Peninsular & Oriental Steam Navigation Company back in the Eighties (as well as Deferred Stock).

Ha! I had P&O stock in the 90s for the cheaper crossings!

didds

[didds]

Yes that's right.
At today's price of circa £1.76 that's 1.76p per share before consolidation

consolidation? meaning I don;t own X shares worth 176p, but Y shares worth <something else> ?

didds

[PinkDalek]

Yes that's right.
At today's price of circa £1.76 that's 1.76p per share before consolidation

consolidation? meaning I don;t own X shares worth 176p, but Y shares worth <something else> ?

didds

Say you used to hold 100,000 shares each worth £0.0176 = £1,760.

Now you'd hold 1,000 shares each worth £1.76 = £1,760.

[didds]

Tx PD!

so - I originally held circa 2.5K shares bought at 176p (stramgely enough).

As I understand it I still hold circa 2.5K shares - worth 176p.

Or don;t I? How would I know?

didds

[PinkDalek]

Do you have a share certificate or is the holding with brokers. The old common stock were $0.01 par whereas the new common stock are $1.00 par (nominal value). See the prior link about issuing new share certificates.

If you bought prior to the consolidation you shouldn’t now have the same number of shares!

[didds]

Ok. Im with halifax.


i got it now! I own 22 shares apparently. in 2011 I owned 2,271.

so basically GKP basically said at some time 100 ordinary shares would only actually be 1 share (ish).

But the price never actually changed per share - I just lost 90% of my holding "for nothing"

Got it. I think!

didds

[PinkDalek]

... i got it now! I own 22 shares apparently. in 2011 I owned 2,271.

so basically GKP basically said at some time 100 ordinary shares would only actually be 1 share (ish).

But the price never actually changed per share - I just lost 90% of my holding "for nothing"

Got it. I think!

All things being equal, you shouldn't have lost anything.

You held 2,271 old common shares of US$0.01 each (nominal value $22.71).

You now hold 22 new common shares of US$1 each (nominal value $22.00) .

If the market value per share were constant, after multiplying the old market value per share by 100, the value of your new holding should be the same as your old holding. Ignoring the fractions [your 71/100] which were aggregated, sold in the market and donated to charity.

Not sure I'm explaining too well ...

[maximan]

Hi didds
Just got back in and caught up with the posts.
As an example if you did buy 2500 shares at £1.76 per share costing £4,400 you now own 25 shares which coincidently are still worth £1.76 a share which are now worth £44.
Unfortunately leaves you with a 99% capital loss.
Sorry about that but there are quite a few of us in the same position.

[Alaric]

Sorry about that but there are quite a few of us in the same position.

So essentially the value of the Company collapsed? It's quite plausible then that the Prefs got most of the value, their better protection is adversity being the price they would have paid for not sharing in the Company's profits.

The Motley Fool has an article from a couple of years ago about it.

https://www.fool.co.uk/investing/2016/0 ... m-limited/

At the core of the balance sheet restructuring is a debt-for-equity swap that would see debt reduced from $600m to $100m through the conversion of $500m of existing debt into equity. What this means is that shareholders who yesterday owned 100% of the company would end up owning just 5%

[didds]

Hi didds
Just got back in and caught up with the posts.
As an example if you did buy 2500 shares at £1.76 per share costing £4,400 you now own 25 shares which coincidently are still worth £1.76 a share which are now worth £44.
Unfortunately leaves you with a 99% capital loss.
Sorry about that but there are quite a few of us in the same position.

yeah ... I worked it out in the end. thanks all.

didds