Readers may recall PaperlinX’s 2013 offer to hybrid holders, the resulting dispute and the close of the offer without result in early 2014. The dispute is over the rights of hybrid holders against the rights of ordinary shareholders. The two parties came into conflict over the hybrid’s terms of issue.
Typically a hybrid will mature or cease to exist when the issuer, in this case PaperlinX, chooses to either redeem the hybrid at face value ($100.00), convert it into shares equivalent to the face value or repurchase the hybrids via a bid tender. PaperlinX, having made a series of losses in recent years, does not realistically have the second or third option available to it and so some sort of conversion is the most likely option.
The hybrids were issued with a face value of $100 and so conversion into ordinary shares would produce a massive dilutionary effect on ordinary shareholders. Hybrids holders have not received a distribution in recent years and so a reasonable valuation would be less than $100. But how much less?
Robert Kaye, the chairman of PaperlinX hinted at the 2015 AGM a resolution may soon be found when he said PaperlinX’s board will seek over the next 12 months “to address the group’s capital structure and with goodwill on behalf of all parties we hope to reach an agreement.”