On 1 August, the French commercial court formally agreed on the refinancing plans to help Europlasma continue as is, albeit with new governance and massive dilution. We merely allow for that dilution from now on.

An ad-hoc Luxemburg based SPV named Zigi Capital and 50/50 owned by MM Alexandre-Henri Carré and Jérôme Garnache-Creuillot has committed to injecting the necessary resources into Europlasma to make it a successful venture. Those plans have been accepted by the commercial court. While there is an entirely new governance, the technique used to prop up the funding of Europlasma is massively dilutive as it amounts to de facto_ equity lines.

Note that the previous governance had reached the conclusion that equity lines were no longer suitable as the group needed a substantial pocket of long-term funding for its two businesses and particularly for the capital intensive green power activity (CHO Power). If no long-term financing could be found for both, the idea was then to sell one of the businesses.

Zigi adds new layers of equity lines essentially achieved by the issuance of very short-term convertibles immediately converted into equity and sold in the market. Europlasma provided a detailed review of the potential number of shares once all known future layers of financing and payment of commissions to arrangers have been deployed.

As of end June 2019, the number of shares was 285m. We had anticipated 2019 to close at 345m shares prior to the financial restructuring and change of ownership. We now allow for 640m shares for 2019-2020-2021 as our current best guess of nearly-certain dilution

Note that Europlasma filed for Chapter 11 in January 2019 and has yet to publish its 2018 accounts. This means that the dilution is both phenomenal and based on highly theoretical earnings.

The impact on earnings last reviewed in November 2018 (…) is quite mechanical even though it is hardly visible with expected eps ranging from -0.01€ to 0.01€. The target price is divided by three as we have also taken a more cautious view on the DCF.

Download the research report : click here