Serinus Energy plc (LON:SENX) Chief Executive Officer Jeffrey Auld caught up with DirectorsTalk for an exclusive interview to discuss the recent fundraise, how the proceeds will be used and how it will affect the company’s longer term plans.
Q1: Now, we’ve just seen this morning that Serinus Energy has raised $21 million in a successful fundraise. What will the proceeds be used for?
A1: We raised $21 million and the proceeds will primarily go to redeeming all of our debt so by the end of December, this year, we had accrued $33.7 million of debt with the EBRD. So, o we raised this money and $16.5 mill of the $21 million will go to redeem that full $33.7 million of debt.
So, we’ll exit as a debt-free company with all our production and cash flow accruing to our shareholders.
Q2: Can you just explain the terms of the EBRD deal just a little bit further?
A2: Like I said, we had $33.7 million of debt that would have been outstanding at the end of the year, we had made a proposal to the EBRD whereby we would provide them $16.5 million of cash and then they would take 9.9%, a large share capital, at the end of this transaction.
So, it’s a combination of cash and shares but essentially, it’s of a 50% off sale on debt so it’s 50 cents on the dollar on the debt plus some equity. I don’t speak for the EBRD but I think by taking equity they’ve given us a good vote of confidence for the upside in the business.
Q3: What does it mean for the company then?
A3: Well, for us, we open up the business to be able to grow again so with this level of debt and with the commodity price disruptions that we’ve had whereby this year pandemic and the Russians and the Saudis arguing over oil price, we saw our revenue collapsed by 68% in April.
So, this means that all of the operating cashflow that we generated all through the year, we’re very low cost producers so even when those commodity prices collapsed, we’re still generating cashflow, this transaction means that the operating cashflow from the business can now be directed to growth projects in the existing assets.
So, rather than having all the operating cashflow being pulled out to service debt, we can now grow the business and we can do that by investing in our existing assets so nothing wild or crazy, we’re just going to work our current assets, increase the production & increase the cashflow.
Q4: Finally, how does this affect Serinus Energy’s longer term plans?
A4: Well, again, the size of the debt, & this was legacy debt, it was put in place in 2013, when the debt was signed brent crude was trading at $108 a barrel so the world really changed, but with $33.7 million of debt, the terms were that we would pay the EBRD just over $8 million every 30th of June for the next four years.
So longer term, now that that debt is retired, we don’t have that significant chunk of cash flow coming out of the business. So, like I said, we can invest in the business but we can also get to a position where cashflow generation covers all of our capital plans, all of our operating costs & and at that point, we can decide how to allocate that capital.
We can allocate to new projects, we can distribute to shareholders, we can do a whole bunch of things but very clearly by relieving that burden of having to pay a significant chunk of the operating cashflow out to service debt, it really does free up the business to be able to do more operations.