We get a lot of questions about these InterOil debentures, so instead of having to reply to each and everyone of you, we’ll just give our thoughts here. It’s actually quite simple..

1. We have heard (but we cannot confirm) that a fair amount of these debentures have already been converted, as both parties can initiate (although InterOil’s initiation bares certain conditions.
2. These conditions are the average daily stock price  should be above $32.50 for 15 consecutive trading days. We’ve just finished the 14th consecutive day where that has happened.
3. If the average stock price stays above $32.5 tomorrow (a fair assumption, we would say), InterOil has the right to demand conversion (the conversion price is $25, hence about 3M new shares will be issued), the time frame to do so is limited to something like 20 days
4. The advantage of conversion make this option very attractive, as InterOil pays 8% interest (two yearly instalments) on these, and it’s balance sheet will be cleared really quite considerably (only the OPIC loan remaining). This would open up the possibility of new debt finance (second rig, stripping plant…)
5. The question we get most (no surprise there) is about the likely influence on the share price once conversion is a fact. The most likely answer is….. very little. Why is that? Well, as Wayne said in that now famous ‘interview’, these debenture holders have hedged by shorting (and/or put options) against the risk the shares will fall below the conversion price ($25) and they’ll suffer a capital loss. Any effect that selling of shares will have will be more or less neutralized by closing out these hedging positions.
6. Adding to that, it’s by no means certain that they will sell all, or even a substantial part of their freshly minted shares