De-listing irks retail investors
Fallout from Chemtrade’s Canexus deal
Wrapping up a transaction, especially a takeover, always brings its own set of circumstances — and nuances.
But a gang of largely retail investors who own convertible debentures issued originally by Canexus Corp. — the company was acquired by Chemtrade Logistics Income Fund earlier this year — feel they have received the rough end of the pineapple.
They make that claim because some of the bonds — and Canexus issued three series — while remaining outstanding, will be de-listed from the TSX. But the debentures — the 6 per cent due 2020 and the 6.50 per cent due 2021 — will continue to trade in a dealer- to- dealer market, a place that is in the purview of the institutions.
“The de- listing is not ( in) the interests ( of the) retail investor. We stand to lose the most in a de-listing,” declared one, who wonders why the TSX allowed the debentures to be de- listed, given that is has other options. How did we get here? One- week back, Chemtrade announced the change of control provisions under which it had made offers for three classes of converts and one offering of unsecured notes were about to expire. For two of the debentures ( t he 6- per- cent and t he 6.50- per- cent) the offer was at 100 per cent of the principal amount, while for the 5.75-per-cent debentures the offer was at 101 per cent of the principal amount. ( The offer for the notes was also set at 101 per cent.)
In each case — with the offer terms having been set when the capital was raised originally — holders would receive accrued and unpaid interest. All offers were set to expire this past Monday.
The offers — against the backdrop of market prices being above the offer prices — achieved varying degrees of success. How successful? None of the holders of the unsecured notes accepted the offer, while for debentures the numbers varied from 12.8 per cent to 21.9 per cent to 76.5 per cent.
On Thursday, after more offers were accepted, Chemtrade announced it had acquired all the outstanding 5.75-per-cent converts. Those holders received par — meaning most holders got $ 101 while the minority got $100.
At the time of the May 5 offer, Chemtrade said that the “unacquired debentures and notes will remain outstanding.” As for the other two debentures, plans call for them to be de-listed next Monday.
One institutional investor weighed in on what has transpired. In its view, the delisting is “detrimental” to the interests of the retail investor because “they can’t trade them in the over-the-counter market.” In other words, says the institution, “they ( the retail investor) doesn’t have the ability to transact in these any more.” He argues a de- listing intention increases the number of debentures that are tendered.
And given the rules adopted by some financial institutions, retail investors may not be able to hold OTC securities in either their registered or non- registered accounts. And that’s a pity because both converts are attractive investments on a yield basis with a coupon that’s above current market rates. ( Both converts were trading above $100 per face value on Thursday.) And the coupons are attractive given that a week back, Chemtrade closed a $201.25-million convert issue that had a 4.75-per-cent coupon and 30- per- cent retail participation.
Reached Thursday, Rohit Bhardwaj, Chemtrade’s chief financial officer, said there is “no obligation” to keep the Canexus debentures listed. In addition, he said holders have received a healthy gain in the time that Chemtrade has been trying to acquire Canexus. “We thought we were being very fair,” he said.
We were unsuccessful in receiving a comment from the TSX.
THEY CAN’T TRADE THEM IN THE OVERTHE-COUNTER MARKET.