TIDMMEN
RNS Number : 3269L
Molecular Energies PLC
05 September 2023
5 September 2023
MOLECULAR ENERGIES PLC
("MEN" or the "Company")
Proposed sale of President Energy Holding UK Limited ("PEH") for
up to US$40 Million
Notice of General Meeting
Molecular Energies (AIM: MEN), the international energy company,
is today publishing a circular to be sent to shareholders ("the
Circular") relating to the proposed sale of its Argentinian oil and
gas business to PLLG Investments Limited ("the Purchaser"), a
company beneficially owned by Peter Levine, for a total potential
consideration of up to US$40 million (the "Sale").
The Sale is of the entire issued share capital of President
Energy Holding UK Limited being the beneficial owner of President
Petroleum S.A. ("PPSA"), the owner and operator of the Company's
business and assets in Argentina and is more fully detailed below
and in the Circular. All other assets and businesses of MEN
including in Paraguay and elsewhere in the world are not
affected.
The consideration for the Sale comprises:
-- US$2m cash payment on the date falling 12 months from completion of the Sale;
-- The Purchaser to procure the repayment of US$13 million debt
and interest owed by PPSA to MEN;
-- Contingent consideration of up to 20% of the net free
cashflow of PPSA over the next 5 years.
All of the above up to the sum of US$40 million in aggregate and
subject to certain conditions.
The Sale constitutes a substantial property transaction pursuant
to s190 of the Companies Act 2006 and a fundamental change of
business pursuant to Rule 15 of the AIM Rules for Companies.
Accordingly, the Sale requires the approval of shareholders in a
general meeting and consequently the Circular contains a notice of
general meeting to be held at 3pm on 21 September at The RAG Army
& Navy Club, 36 Pall Mall, London, SW1Y 5JN (the "General
Meeting"). The Directors have also determined that it is
appropriate, taking into account the size of the Company, to extend
the share authorities granted to the Directors to allow more
flexibility in the future as the Company moves forward in its
business and strategy. Shareholders will accordingly be asked to
vote on such extension at the General Meeting.
The Purchaser of PEH is a company ultimately beneficially owned
by Peter Levine. Since Peter Levine is a Director and substantial
shareholder in the Company, the Sale represents a related party
transaction pursuant to Rule 13 of the AIM Rules for Companies.
The Independent Directors (being all those save for Peter
Levine), having consulted finnCap Ltd, the Company's Nominated
Adviser, consider that the terms of the Sale are fair and
reasonable insofar as the Company's shareholders are concerned.
Notice of the General Meeting and a form of proxy are available
on the Company's website at
www.molecularenergiesplc.com/investors/documents-circulars/ .
General Meeting
The Independent Directors of the Company being all directors
apart from Peter Levine (the "Independent Directors") unanimously
recommend the passing of the Resolutions as being in the best
interests of the Company. Accordingly, the Independent Directors
intend to vote in favour of such Resolution in respect of their
entire beneficial holdings.
Peter Levine also intends to vote in favour of such Resolutions
in respect of his entire beneficial holding, which in aggregate
with the Independent Directors, represents approximately 29% of the
entire issued share capital of the Company.
Robert Shepherd, Financial Director, commented:
"The proposals contained in the Circular represent the best
interests of the Company. It is clear that the market is not
appreciative of investment in Argentina and the current economic
and political environment combined with the rampant inflation and
severe restrictions on foreign investment have led the Independent
Directors to conclude that the divestment of our Argentine business
is appropriate.
"The Sale preserves potential upside for the Company from both
future trading of the Argentine business as well as repayment of
certain existing inter-company debt depending on the circumstances
whilst removing Argentine exposure and debt from group and allows
Molecular to build a substantial business free from those
concerns."
Circular to Shareholders
The following is extracted from the Circular:
Introduction
The Sale provides MEN with the potential to grow significantly
as a public company without the anchor drag of being involved in a
country sadly regarded by many investors in both the London and
international markets as uninvestable at the present time.
Additionally, the Sale will enable MEN, as a Group, to be free
of approximately US$33 million of third-party financial debt which
sits in the Argentine company. This will leave the only remaining
financial debt in MEN as a long-term and interest-free loan
currently standing at US$12.1 million provided by one of Peter
Levine's beneficially owned companies with a maturity date of end
of December 2025 and capable of extension if the parties agree.
MEN will continue to be an active trading company upon
completion of the Sale, retaining its interest in a highly
prospective exploration licence in Paraguay, with an exploration
well currently due to commence drilling in September, as well as
its material and valuable interests in Atome Energy PLC and Green
House Capital.
The Sale requires approval by the shareholders of MEN pursuant
to s190 of the Companies Act 2006 due to the fact that Peter Levine
is a director of the Company and the ultimate beneficial owner of
the Purchaser, and due to the Sale being of sufficient size
relative to that of the Company to constitute a disposal resulting
in a fundamental change of business pursuant to Rule 15 of the AIM
Rules. Completion of the Sale is, therefore, conditional upon
(amongst other things) the approval of shareholders at a General
Meeting of the Company. The matters referred to in this Circular do
not affect the intention of MEN to spin-out its Green House Capital
division via an Initial Public Offering during the course of this
year.
At the same time, the authorities granted to the Directors to
issue shares are proposed to be enlarged to give MEN the
flexibility to use capital increases for the benefit of expansion
going forward.
Background to PEH
PEH is the beneficial owner of the entire issued share capital
of President Petroleum S.A ("PPSA"), a company registered and
operating under the laws of Argentina.
PPSA is the owner and operator of MEN's oil and gas interests in
Argentina comprising 3 oil and gas producing concessions and one
producing exploration licence in the Rio Negro Province and an oil
producing concession in the Province of Salta. The concessions held
in Rio Negro are 90% beneficially owned and expire subject to
renewal in 2027/8, the exploration licence is wholly owned and
expires within 12 months and the concession in Salta is entirely
beneficially owned and due to expire in 2050 subject to
renewal.
Current Position
All of the concessions/licences are conventional mature fields
and are subject to inevitable natural declines, the consequences of
which have seen net oil and gas production decrease from an average
of 1,650 boepd in 2022 to 1,514 boepd in the second quarter of
2023.
PPSA is operationally profitable with an EBITDA registered with
the Argentine authorities of approximately US$3.5 million for the
first 6 months of 2023 on turnover of approximately US$16 million.
Much of this operational profit is used to service its third-party
financial debts which are currently approximately US$33 million.
All financial debts, both capital and interest, are being serviced.
Current registered 2P hydrocarbon reserves as at 31 December 2022
are approximately 19 mmboe. PPSA will on the contemplated
completion of the Sale owe MEN approximately US$13 million,
comprised of the sum of US$10.9 million by way of an intercompany
loan and US$1.9 million of accrued interest, which it is currently
prohibited to service due to Argentina Central Bank restrictions on
all such foreign payments.
Reason for Sale
The independent directors (being all directors save for Peter
Levine) consider that the Sale is in the best interests of
shareholders in MEN for the following reasons:
1. The country of Argentina is economically and politically
volatile and unstable and has degraded materially since the Company
became invested there, especially so this year. In effect, the
country has run out of dollars and a primary election for President
of the country in August produced a surprising result creating
significantly more instability and uncertainty and resulting in an
approximate 22% depreciation of the Peso overnight. Inflation is
running at over 100% per annum and projected to increase with no
certainty of the country restoring its economic and political
stability in the medium term. Since the primary election the
country has imposed a Medanito (domestic crude) reference price of
US$56 a barrel.
2. PPSA is currently prevented from paying any of its intergroup
debts or interest on them by Central Bank restrictions, nor can it
pay overseas service providers and there is in effect a Federal
block on it being able to pay for any assets or service equipment
from abroad. No dividends can likewise be paid out of the country
to foreign interests. These are general restrictions affecting all
areas of business in Argentina and, whilst PPSA is a dollar-based
business, it is adversely limited by the environment in which it
operates.
3. The public markets in London have shown a consistent lack of
appreciation of foreign investment in Argentina, demonstrated by
the present market capitalisation of MEN. Of the three AIM
companies with material oil and gas interests in Argentina
(including MEN), one has been privatized by its largest shareholder
(Phoenix Global Resources) and the other (Echo Energy) has reduced
its Argentine exposure to a relatively minimal level with its
shares at the date hereof suspended from trading on AIM.
4. The mature fields owned and operated by PPSA, whilst
operationally profitable, require sustained investment. The Board
considers it inadvisable for foreign investment to be made into
PPSA from MEN to continue expanding the business. There is no
guarantee when or if at all that monies can be repaid, and
dividends paid. This acts as a severe inhibitor when it comes to
using the capital markets for the benefit of MEN's other
businesses.
5. The Independent Directors therefore consider that Argentina
is not a country into which MEN as a London Stock Market company
should continue to invest and accordingly PPSA should no longer be
held by MEN.
The Independent Directors also consider that the Sale will
preserve the structure of PPSA and permit a smooth and expeditious
transfer of ownership without requirement of any Argentine
regulatory consents and approvals.
By selling to an entity of Peter Levine, it will also preserve,
as far as is reasonably possible, the financial integrity of PPSA
in the face of its third-party financial creditors, the Provinces
and business partners. It also avoids the usual costly and lengthy
due diligence, warranties and indemnities that are required by
independent third parties given there are in this case none
required by the Purchaser other than as to title to the shares of
PEH so any risk to MEN in this regard is obviated.
The Sale has been deliberately structured to provide MEN with a
near-term cash injection, provide for repayment in due course of
the US$13 million of debt and accrued interest owing by PPSA to MEN
and provide MEN with exposure to any enhancement in PPSA's
profitability and ability to pay dividends by way of the contingent
consideration linked to free cash flow generation all subject to
conditions.
The Terms of the Sale
The terms of the Sale are:
1. Subject to PPSA continuing to carry out its operations in the
normal and ordinary course during the period of 12 months from
completion of the Sale, the Purchaser will, on the date falling 12
months from completion of the Sale, pay to MEN a cash sum of US$2
million.
2. By way of further consideration, the approximately US$13
million intercompany debt and interest owed by PPSA to MEN shall be
procured by the Purchaser to be repaid by PPSA subject to, and as
may be permitted by, Argentinian law and as may be able to be paid
subject to cash flow requirements of PPSA and third-party financial
debt to which such loan is subordinated. As the debt will no longer
be owed intercompany, it will after the Sale be recognised as a
form of receivable in MEN's accounts contrary to the present
position where it does not feature in the Group balance sheet.
3. Subject as in paragraph 1 above, over the period of a maximum
of 5 years from completion of the Sale, the Purchaser will pay to
MEN a sum equivalent to 20% of net free cash flow of PPSA each year
after taking into account capital and operating expenditure, debt
conditions and servicing, reasonable working capital requirements
and repayment of the intercompany debt and subject to PPSA being
able to pay from time to time net dividends out of the country and
to the Purchaser.
Providing always that the total consideration as above shall be
limited to the aggregate sum of US$40 million.
Authorities
The Resolutions numbered 2 and 3 relate to the authority of the
Directors to issue Ordinary Shares including on a non-pre-emptive
basis.
Taking into account the current relatively small market capital
of the Company and Company's initiatives recently announced as of
today, it is considered that increasing the relevant authorities
to:
-- an amount representing 50 per cent of the aggregate issued
share capital in respect of the general authority of the Directors
to allot Ordinary Shares; and
-- an amount representing 30 per cent of the aggregate issued
share capital in respect of the general authority of the Directors
to allot Ordinary Shares for cash on a non-pre-emptive basis,
-- will allow the Company to have more flexibility in expanding its businesses.
Related Party Transactions
Peter Levine is a Director and substantial shareholder in the
Company. The Purchaser is a company ultimately beneficially owned
by Peter Levine. Accordingly, the Sale represents a related party
transaction pursuant to Rule 13 of the AIM Rules for Companies.
The Independent Directors comprising all the Directors of the
Company other than Peter Levine, having consulted finnCap Ltd, the
Company's Nominated Adviser, consider that the terms of the Sale
are fair and reasonable insofar as the Company's shareholders are
concerned.
Contact:
Molecular Energies PLC +44 (0)20 7016 7950
Peter Levine, Chairman info@molecularenergiesplc.com
Rob Shepherd, Group FD
finnCap (Nominated Advisor and
Broker)
Christopher Raggett, George Dollemore +44 (0)20 7220 0500
Tavistock (Financial PR & IR)
Simon Hudson, Nick Elwes, Charles
Baister +44 (0)20 7920 3150
Notes to Editors
Molecular Energies PLC is an AIM listed company at the forefront
of energy development and has interests across the energy spectrum,
from oil and gas projects to subdivisions in the green and
alternative energy sub-sectors.
The Company has oil and gas production in Argentina as well as
exploration assets in both Argentina and Paraguay. The Company has
two separate subdivisions which are focused on early-stage
opportunities in the green and/or alternative energy
sub-sector.
Activities in the green and alternative energy space are being
carried out under the Green House Capital brand and through AIM
listed Atome Energy PLC, a green hydrogen, ammonia, and fertiliser
company operating in Paraguay, Costa Rica and Iceland, in which MEN
currently has 20.5%.
With a strong strategic and institutional base of support, an
in-country management team as well as the Chairman whose interests
as the largest shareholder are aligned to those of its
shareholders, Molecular Energy gives UK investors access to an
energy growth story combined with world class standards of
corporate governance, environmental and social responsibility.
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014 as it forms part of
UK Domestic Law by virtue of the European Union (Withdrawal) Act
2018 ("UK MAR"). The person who arranged for the release of this
announcement on behalf of the Company was Robert Shepherd, Group
Financial Director.
-ends-
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END
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