London Capital & Finance: Smith & Williamson blank potential buyer for Independent Oil & Gas loan

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London Capital & Finance administrator Smith & Williamson’s hopes of limiting investors’ losses to 83% currently rest entirely on the recovery of £38 million lent to Independent Oil & Gas by via an LCF shell company, London Oil and Gas (also in administration).

S&W’s Finbarr O’Connell said earlier in March that he was optimistic about making a “full recovery” of the IOG loan. At time of writing the administrators have not put a figure on potential recoveries for any other of LCF’s assets.

RockRose Energy (which is listed on the LSE’s main market) has revealed that it has made a £40 million cash offer to buy LCF’s debt from London Oil. This deal would apparently result in the hoped-for recovery becoming real. However, this deal is in doubt over what RockRose describe as a “lack of engagement” from S&W and IOG.

RockRose Energy’s plan is to buy IOG’s debt to LOG and exercise debt-to-equity conversion rights, which it believes would give it more than 50% of the resulting diluted share capital – essentially allowing it to take over IOG via its debt.

However, RockRose Energy’s attempts to confirm that this plan would actually work, by asking LOG to disclose its diluted share capital, have been met with silence from Smith & Williamson and IOG.

As a result RockRose Energy are considering legal action to force IOG to disclose its undiluted share capital.

Whether there are any other potential bidders willing to hand over £40 million for IOG’s debt is unknown. If not, annoying RockRose to the point they threaten legal action doesn’t seem like a very good strategy for recovery.

If the debt is not bought, LCF investors are left hoping that IOG can pay back the debt from its revenues. The other potential strategy, which has been previously mooted,  is for the administrators to exercise the conversion rights themselves and then sell the shares on the AIM market at some point.

However, with IOG’s entire share capital currently valued at £23 million at time of writing, the chances of LCF’s resulting share ever being worth £40 million on the open market seems a very long shot – if RockRose’s bid is turned down.

LCF raised at Treasury Questions

At Treasury Questions on Friday, Shadow Business Minister Chi Onwurah asked three questions about LCF:

To ask the Chancellor of the Exchequer, what steps the Government is taking to compensate people who invested in London Capital of Finance [sic per Hansard].

To ask the Chancellor of the Exchequer, with reference to the collapse of London Capital of Finance, what steps he is taking to prevent investment schemes which engage in mis-selling from trading.

To ask the Chancellor of the Exchequer, with reference to the collapse of London Capital Finance, what recent assessment he has made of the (a) adequacy of the financial regulatory framework and (b) effectiveness of that framework in relation to inexperienced investors.

On compensation, Economic Secretary for the Treasury John Glen unsurprisingly repeated the current position; the FSCS is not currently accepting claims, but “if there are circumstances that give rise to potentially valid claims, the FSCS will begin to accept claims against LCF”. Investors should not get their hopes up prematurely, as the part in italics is a truism, equivalent to saying “if I jump in the water, I will get wet”.

On the other two questions, Glen issued generic responses, stating that the Government takes LCF very seriously, that “the regulatory framework for financial services is under constant review”, and that while the Government is committed to investor protection, “this needs to be balanced with a need to regulate only where there is a clear case for doing so”.

He commented correctly that the promotion of minibonds like LCF was already regulated, and this was the responsibility of the FCA, but did not specifically censure the FCA for ignoring the multiple warnings it received on LCF from 2015 onwards.

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