The Evil Diaries: GRIT, Oxus and Dialight

A few weeks ago I touched upon Global Resources Investment Trust (GRIT). In the light of an RNS after COB Friday 16th October it seems that we can look at this company differently.

This was floated in early 2014 and is full of unmarketable rubbish. There are 39.5m shares in issue (but see below re conversion of loan stock). The issue price was 100p and, because GRIT was established to take unmarketable rubbish (i.e. shares in GRIT for the rubbish), promptly rewarded followers by settling at 40p after a few weeks. GRIT then borrowed £4.85m (topped up by £150,000 a few months later) at 9% p.a. in the form of convertible unsecured loan notes.

(It should be noted that I have used the term ‘rubbish’ in a dismissive rather than pejorative sense.)

The chief overhead of GRIT is £450,000 by way of interest. The trouble is that the assets do not go up in value; they simply yield under the pressure of yet more sales by frustrated holders. Then there is the management fee of 1.5% p.a. charged by RDP Fund Management. This comes to a cheerful £285,000 p.a. After that comes what are essentially AIM-compliance costs of NED’s (c. £100,000 p.a.), audit etc. etc. or perhaps £900,000 all told. Poor little GRIT has no chance. After all, the assets managed come to only £19m. To pay away c. 3% by way of review and control costs cannot be done.

Just leaving things as they are is completely mad. Indeed it might be argued that it is not merely irresponsible but, from the directors’ perspective, unlawful to do nothing.

Tnav is published by GRIT every few days/weeks. The last published, 8th October 2015, figure was 35.56p (but see below re conversion of loan stock). The last quote in the market was 6p to 10p as at COB 16th October. The RNS on conversion of loan stock came out after COB 16th October. Here £250,000 of loan stock was converted at 75p (the minimum possible) per share to produce a further 333,000 shares. The effect is to remove £250,000 from the balance sheet as a liability and brings the total outstanding liabilities to loan note holders to £4,750,000 which is just under what is required to see that loan note holders enjoy 4 times cover of the liabilities due to them.

Had this compliance not been achieved I suppose loan note holders could have sought the winding up of GRIT. That would certainly have caused GRIT to have to leave AIM and many costs would simply be eliminated. One of these would possibly be the management fee. Given that it was seemingly the manager which converted its own £250,000 loan stock (at 75p) to stock worth perhaps 7.5p the manager must have thought so great an immediate loss would be worth sustaining to stay in the game.

Anyway, whilst it is possible that the outlook for the portfolio improves, there must be the clear possibility that it might not. This will entail further conversions of loan stock, presumably by the manager since the manager alone amongst holders of loan stock has an interest in keeping management fees being generated.

The tnav figure of 35.56p is presumably based on mid price figures. The problem is that it would be wiser in this market to work on bid figures and by that I mean bid figures that would stand inspection in the face of selling, say, £25,000 lines of stock. On this latter basis tnav for the purposes of the real world collapses. It is hardly surprising that this factor alone makes one doubt the tnav figure. But, given the stupendous overhead costs of this tiny company, it is also readily seen why the company is valued in the market at 7.5p or perhaps £3m or c. 20% of tnav. It is now time for shareholders to do something or, failing that, have something done to them.

*****

I bought 750,000 Oxus (OXS) on Friday last at around 4.25p since I incline to the view that the RNS covering the sorting out of the repayment of debt due in a few weeks’ time is fairly bullish. Of course, the real news is whether the arbitration court has finally pronounced and in favour of Oxus. This development has been for a fortnight or so “imminent”. Well, I suppose it depends upon what is meant by ‘imminent’.

*****

Finally, Matthew Earl again draws my attention to the grotesque overvaluation of Dialight (DIA). This now stands at around 700p. Borrowing stock is difficult.