SCOTIA on TGA:
Convertible Deal to Fund Expansion
We are off restriction upon closure of TransGlobe's previously announced $85M
bought deal convertible unsecured subordinated debentures (6% coupon), that should
provide ample capacity to expand its Egyptian asset base and fund an active 2012
program. Proceeds from the offering have been earmarked to be used to pursue new
business development opportunities including adding new acreage through farm-in
arrangements, bid rounds (expected to close Q2), or acquisitions. Under its preliminary
outlook for 2012, TransGlobe has plans to drill 38 wells (36 wells in Egypt) that in our view
offer one of the highest risk/reward names with material catalyst potential over the next 12
months. Inclusive of the issue, we estimate TransGlobe's current cash position at roughly
US$165M.
TransGlobe has also granted the underwriters an over-allotment option to purchase, on the
same terms, up to an additional $12.75 million aggregate principal amount of debentures that
is exercisable in whole or in part, by the underwriters up to 30 days after closing that could
increase the maximum gross proceeds raised under the offering to 97.75 million. The
debentures will be convertible in to common share of the company at the option of the holder
on March 30, 2017, at a conversion price of $15.10/sh representing a conversion premium of
45%. TransGlobe is expected to release its Q4 operating and financial results on March 8.
We reaffirm our 1-Sector Outperform rating on TransGlobe and our one-year target
price of $14.00 per share, based on our unchanged risked NAVPS of $13.64.
Upcoming catalysts - We see three key near-term catalysts that would have a material
impact on TransGlobe: (1) the closing of the South Alamein acquisition, (2) approval for the
Safwa development; and (3) the upcoming Egyptian bid roun