Couple of intriguing short positions opened in Heritage Oil by Oxford & Highbridge Capital

I was intrigued to see this morning that Oxford Asset Management had joined Highbridge Capital Management in opening a short position in Heritage Oil of some 0.6% (1.5m shares) of the float (Highbridge are short 0.3% – 750k shares). What had me scratching my head is the fact that Oxford’s RNS stated the 6 Aug as the date the position was held – this was the day before the shares were actually re-listed which implies they had been short ahead of the suspension or they have there is a mistake with the disclosure date.

Being short the stock ahead of a rights issue is a dangerous game as you will of course need to deliver up the nil paids too should you be called on the stock – this is something to watch when the stock does go ex-rights and could provide for a good trading opportunity in the lower priced rights (a sort of short term option on Heritage). So in total they are short 2.25m shares – not a phenomenal amount of stock but still, Heritage shares are quite ‘gappy’ and if they try to cover in a hurry there could be quite a spike in the stock.

I caught up with Paul Atherton yesterday for a brief chat and he confirmed that they have been carrying out roadshows with their major institutional investors during the last 2 weeks and that en masse they are supportive of the OML acquisition. He hinted that the placing route as opposed to the Convertible Bond issue (he bond route being more appropriate in my opinion – less dilutive on equity and a cheaper debt cost relative to equity) is less attractive to them and so Oxford & Highbridge could be disappointed here if they expect to close their short posi in such a placing…

Looking at the chart below there seems to be good support for the stock in the early 150’s and we continue to believe the stock will be trading more towards 300p than 100p over the next 12 months hence our Conviction Buy call.

5 day chart of Heritage

In the immortal words of Ivan Dragho in Rocky IV, I fear Oxford & Highbridge that “you vill lose”!