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Re: None

Friday, 12/19/2014 5:57:04 AM

Friday, December 19, 2014 5:57:04 AM

Post# of 5825
Debentures, Potential Dilution, Conversion Dates, Lock-up Period, Remuneration

Convertible Debentures (pdf, 10/24/2014)

It seems like the lower the Shareprice would be on each individual Conversion Date the more shares each Debentures Holder would be able to have converted from Debentures (ii), this would mean there is no limit of potential dilution. This especially seems not to be fair to GDS holders who weren’t able to buy Debentures.

"25. Conversion Price:
25.1. The number of Shares to be delivered to the Debenture holders on the Debenture Conversion Date will be the result of dividing the Par Value of the Debentures by the lesser of: (i) the weighted average, by daily volume, of the closing price of the Shares over the last 10 (ten) BM&FBOVESPA trading sessions as of the day after Issuance Date, with a discount of 25% (twenty five percent); or (ii) the weighted average by daily volume of the closing price of the Shares over the last 10 (ten) BM&FBOVESPA trading sessions prior to the receipt of the request for conversion by the Bookkeeping and Mandatary Institution or by the custody agent by BM&FBOVESPA, whichever is applicable, with a discount of 25% (twenty five percent) (“Conversion Price”).
"

However:

Firstly,
I expect a significant increase in shareprice as soon as oil price turns back up towards over US$100 per barrel.

Secondly,
On the one hand each Debenture Holder who wants to convert Debentures into Shares will get a 25% discount, but
On the other hand the investor would have to hold such Shares for one year before being able to sell them. (Lock-up Period, Restricted Shares)


"26. Lock-up period for shares resulting from conversion:
26.1. The shares resulting from conversion will be subject to trading restrictions and transfer for a period of 12 (twelve) months from the Debentures’ conversion date (“Restricted Shares” and “Lock-up Period”), in which their holders must not offer, sell, agree to sale, pledge, lend, lease or grant option to purchase on any Restricted Shares, and refrain from entering into any swap, hedge, short sale or other transaction that may fully or partly transfer any economic or policy benefits arising from ownership of Restricted Shares, with the provision that if the Restricted Shares are given as guarantee, the counterparts shall observe, in any case, the restrictions established on the terms of this item.
"

This will most likely prevent most of investors to convert their Debentures into Shares. Also Debentures will bear an interest rate of 90% and the Unit Par Value of the Debentures would be fully paid on the Maturity Date, which are two more reasons for investors to not convert their Debentures into Shares.

"13. Repayment and Scheduled Renegotiation:
The Unit Par Value of the Debentures shall be fully paid on the Maturity Date (October 24, 2019). The Debentures will not be subject to scheduled renegotiation.
16. Monetary restatement and Remuneration:
The Debentures’ Par Value will not be subject to restatement. The Debentures will bear an interest rate of 90% (ninety percent)
"

So despite getting 25% discount for conversion, the more attractive, safer alternative seems to be:
to keep Debentures, to get the 90% interest within five years and to get back 100% of Unit Par Value on the Maturity Date (October 24, 2019).


After all I expect only a small amount of debentures coverted into Shares resulting in acceptable dilution.
However we will probably only get to know step by step within the next five years.


"24. Convertibility and Conversion Exercise Period:
24.1. Except for cases of Early Maturity or Early Redemption, the Debentures may be converted into Shares of the Issuer, at the sole discretion of Debenture holders as of October 24, 2015 until the Debentures’ Maturity Date (October 24, 2019)(exclusive) (“Exercise Period for Conversion”), and Debenture holders are assured the right to vote at Debenture holder General Meetings to determine by simple majority the shortening of the term from which the Debentures may be converted, subject to following the procedures for exercise of conversion stated in the Indenture.
"

GLA

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