The right to redeem the convertible bonds by LYC is contained within the Convertible Bond Deed Poll released to the ASX on 24/1/12. LYC may give notice to of its intention to redeem all of the convertible notes on issue if at any time the 30-day VWAP of the SP is equal to or exceeds 160% of the conversion price ("CP"). The CP = A$0.10 so LYC's SP has to equal or exceed A$0.16 for this clause to begin to take effect.
Now MK will want to maximize their profit on conversion of their bonds so what are they likely to do:
1. MK will not want to sell on market. The volume is too great.
2. MK will want to sell large blocks off market and as soon as possible
3.. MK will attempt to maximize the sale price by keeping the LYC SP close to A$0.16.
4. MK will not be keen to allow the LYC SP to move into redemption territory. They will know that it is unlikely LYC will be able to obtain the funds to effect redemption BUT you can never be certain. MK;s loss if LYC did would run into 10s of millions.
5. MK is run by an ex Goldman Sachs partner so he will have the skill, knowledge & contacts to keep the LYC SP within the desired range while bond conversion & subsequent share sale occurs. The profit is simply too great not to.
So the incentive to keep the LYC SP below A$0.16, while the bonds are dealt with, is substantial. Any institution wishing to invest in LYC will know this and will endeavor to purchase shares direct from MK at a discount to current SP. Hence institutions are very unlikely to buy in the retail market while bond conversion shares are available and their direct demand will be absent from the retail market until the process is complete.
We will have to see how this actually plays out but I suspect the LYC SP will not gain any traction above A$0.16 until the convertible bonds have gone
hotcopper.com.au/threads/...p;direction=previous#.WaE3TuQUmHk
It is not as simple for MK to convert as some appear to believe. There is the small matter of control and compulsory acquisition if a holder and or related parties controls more than 19.9% of the issued shares.
MK must find unrelated parties to unload their shares once converted. Seems GS calculators were not working properly when they were caught with more than 5% and required to lodge a major holder notice.
I certainly subscribe to the view that SP is capped at 16c while MK work through their ownership plans for Lynas.
hotcopper.com.au/threads/...p;direction=previous#.WaEzQuQUmHk
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