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Highest short interest in FTSE 250 according to Sunday Times!

lse:pmo

#1

The Sunday Times’ Sam Chambers asked why so many investors were betting against exploration and production company Premier Oil?

In his Inside the City column over at the Times, Chambers pointed out that more than a fifth of the FTSE 250-listed firm’s 831 million shares were out on loan, according to IHS Markit, making it the most “shorted” stock in the index.

However, he said things might not be quite as bad as they seem to be.

“Almost three-quarters of those positions are banks borrowing stock to hedge their exposure to Premier Oil,” said Chambers.

Chambers did warn that Premier needed to protect itself after having sold investors contracts for difference, financial instruments that allow speculators to bet on the direction of a company’s share price without actually owning any stock.

He said it appeared that Premier Oil had become somewhat of a “quasi-casino” as its shares were highly correlated with the price of oil, often moving more dramatically than the commodity price itself.


#2

Plenty of games being played that’s for sure, although good to see some share price strength over the last couple of months, especially when compared against the likes of Tullow and Enquest.

Deadline for Zama bids on Friday, maybe someone will add an extra few quid and go for our stake in the entire block?!


#3

Yes, performed ok recently, nice not to have bad news like some others, the steady as she goes and paying down debt is good after the last few years although still some way to go.

Let’s hope that Zama goes for a decent price and then we shall see how those short interests react…the short tracker already showing declines to ~3.8% and AHL down to under 1%. It was over 5% not too long ago. Equally the higher oil price doesn’t hurt either.


#4

Oil prices aside, next year does look promising…

  • Zama sale
  • Debt reduced to an acceptable level
  • Alaska drill
  • Sea-Lion sanction?
  • Refinance the debt and get rid of the restrictions on shareholder returns
  • Tolmount online in Q4

Maybe the buy and hold brigade will finally have something to cheer about.


#5

Who are Asia Research & Capital Management Ltd as they have a short position of 16.85% in Premier ! Short tracker just updated today to show their massive short interest which they have held for some time and so it shows a total short interest as 20.58% whilst yesterday it was 3.8%.

I’m guessing they must hold a substantial amount of Premier debt so its a hedge against it, anyone got any better info ?


#6

Very odd, have mailed IR to see if they have anymore info. Its a huge position, so surely wouldn’t have gone unnoticed for so long?!


#7

Ok, found the story behind it. I’m surprised it has only been made public yesterday by FCA

Premier Oil’s Key Lender Takes 17% Short Position on Shares
ARCM has $380 million of company’s $2.5 billion loans due 2021
Oil explorer is resisting creditors’ demands to raise capitalBy Luca Casiraghi and Antonio Vanuzzo
(Bloomberg) – Asia Research & Capital Management, the largest lender to Premier Oil Plc, is hedging its exposure to the company with a 16.8% short on the company’s shares.
ARCM’s position on the London-listed exploration firm dates from July and was made public on Wednesday in data published by U.K. financial watchdog the FCA. The hedge fund started by Perry Capital’s former Asia head Alp Ercil, started shorting the company in 2017, and it’s been steadily increasing the position since September 2018.
ARCM also has $380 million of exposure to the company’s $2.5 billion in loans that are due to mature in May 2021, according to people familiar with the matter.
Premier Oil has been talking to creditors including ARCM, Citigroup Inc., Deutsche Bank AG, Fortress Investment Group and Varde Investment Partners over ways to reduce debts amid volatile oil prices. The company is resisting lenders’ requests to raise about $500 million of new capital, while ARCM opposes any potential extension of the debt beyond 2021, the people said.
Officials at Premier Oil and ARCM declined to comment on the disclosure and on the negotiations.


#8

Cheers lots_of_sense, not sure what to make of this. Obviously some games are already been played ahead of the refinancing.

This is what it sounds like to me (if the article is accurate)….

ARCM want Premier to raise new capital (right issue or placing) so they can get paid out on the debt AND close their short for a profit as the market is flooded with new cheap shares…….sounds like a good deal…for them.

Premier are resisting and would prefer to extend the maturities on the debt, which ARCM are opposing so it forces Premier to go down the route of raising cash.

I do find all this surprising, especially when shale companies with zero FCF are issuing debt at less than 5%, but then nothing is ever simple with Premier.

Any other explanations?


#9

If you recall there were similar HFs holding out for a deal like that during 2017 refinancing . Some held converts, this one seems outright:

And this HFs news seems old:
Bloomberg reported this in September;

google. co. uk /amp/s/www.bloomberg.com/amp/news/articles/2019-09-18/premier-oil-talks-to-lenders-about-demands-for-capital-increase


#10

Hi, sounds plausible.

Now looking at it, they have debt worth just £290m ($380m out of $2bn) or 19% and currently have a short position against £126m of the stock (~137m shares or 16.85%).

Need to think of the impact if debt is paid down quicker than expected and whether that might force a close out of their shorts as PMO would be in better position to refinance and pay off their debt.


#11

The market has found out who the hidden shorter has been for years .And their debt position. They are exposed to a massive loss here if they have to cover their shorts due to debt being paid faster. There is 1.5 years left for that $380 mn debt to mature. Their threat of not extending maturity beyond the current maturity date of May 2021 would have had some punch if we were very close to that date. Anyways my understanding is that HF can sell the debt before May 2021 if they don’t want to extend the maturity and want their money back , and if pmo doesn’t want to pay them back in full?

It’s good that Zama sealed final offers date is tomorrow, 6th December which is (coincidentally?) the opec decision date, which might push more bidders into FOMO mode and getting them to put in their extra best offers for Zama , given that oil price visibility will be there into 2020 due to opec decision.

Can the market squeeze this shorter out given that their debt and short position is exposed now , and given that the debt they hold matures after 1.5 years ?


#12

The article looks like a rehash from the one in September, but I can’t find the new one, do you have the link lots_of_sense?

With such a large position, ARCM must have been betting on new shares hitting the market at some point, no doubt they’re exerting maximum pressure on the other debt holders to hold out on the same request for new capital. With Zama sold and a good first half next year convent debt will be less than 2xEBITDA at the end of H1, which isn’t a metric of an oil company that needs to raise fresh capital, but will ARCM force the issue anyway?! The company is certainly in much better position than the last time we carried out the refinancing, which will give us a much stronger hand during the negotiations.

Not sure about squeezing the shorters out, in my experience the debt holders wield all the power but you never know.

Maybe one for IR, but if the maturities are extended, would the interest rates and current restrictions on shareholder returns remain the same? Both would be hugely disappointing, particularly the punitive interest rates.


#13

Hi Beatley, its from Bloomberg Professional so no link available.


#14

Now, I have done a very quick and very dirty analysis on their short, so take it with a decent pinch of salt as I’m only using end of day prices and even then I don’t have all of those (so I have interpolated as required) but this is what I have.

Current Short 140m shares

Overall Shorted value £97m (inc some losses on previous buybacks), avg net price of short 69p

Current value of stock £129m, current price 92p,

Current Mark to Market Loss -£32m

I’m sure the boys in the city have done alot better analysis than this and will do what they do, but needless to say as the price goes up they will be getting margin calls on the MTM and given how shorted this stock is doubt too many people willing to lend out shares IMHO.


#15

Likely well offset by the gains they’ve made on the debt, but could still shoot them in the foot if someone with deep pockets decided to test their resolve.


#16

Indeed, just wonder if any hedge funds thinking its worth a punt ? Currently looking at £1.4m MTM loss for every 1p move up on their short alone ! and its not like you can get out of a short that size quickly given the normal trading volume on PMO.


#17

As you can imagine, I’m all for it :slight_smile:


#18

They have had to reduce their shorts in the past, like in Jan18 and Jun/Jul18 but nothing recently.

Just so surprised that they didn’t have to disclose the short interest earlier as I imagine as a large creditor they might also have had access to some company information that is not public ? i.e. creditor discussions ?

Any thing back from IR yet regarding it ?


#19

It is very odd, especially with it being some a large position, feels a little underhand, but not sure what difference it would have made it everyone was aware of it earlier?!

They have, points below:

  • Historical disclosure issue for ARCM, position was built between Feb 2017 and July 2019, not traded since July
  • Hedging their credit exposure, position was built at the same time as they were acquiring debt in the secondary market
  • Premier were not aware of the position until this week, disclosure explains the different between stock on loan and declared short positions
  • Premier expect ARCM to close the position when we refinance, discussions on the this are progressing well and hopeful to resolve in Q1 2020.

Last point is interesting, hopefully we’re doing more than just extending the maturities with the current interest rates.


#20

Evening Beatley & Lots of sense, I only v occasionally look in on II these days, but both of you are posting some great insights. I now post only on lse under the beerbull moniker. ( diesel was taken). I think if you also moved across to lse a much wider audience would read & enjoy your posts. Either way looking forward to sunny uplands for PMO & it’ll be interesting to see what happens tomorrow given the amrc reveal.