Last year Tejoori announced that it would liquidate. With the stock trading around $0.50/share while I estimated a NAV/share around $0.62/share I thought it was a good bet. In the end that estimate proved a tiny bit too optimistic since I got paid $0.59892/share, but I guess an unfavorable currency exchange rate is partly to blame. The liquidation distribution was paid in United Arab Emirates Dirham, and I have seen other shareholders reporting receiving a slightly higher payout in US dollars. But I’m happy to have gotten my money…

Because the company cancelled their electronic trading facility before making the liquidation distribution receiving the liquidation payout was a bit of a messy process. The depository that my broker used to keep my shares had to communicate with the liquidators in the British Virgin Islands to make sure that the money got transferred manually from Abu Dhabi to their bank account. Since that’s probably a very exceptional thing to happen, I can see how that can go wrong somewhere along the lines if someone, somewhere doesn’t fill-in the right paperwork. I like deals like this where you can’t be totally sure that everything will work out because of the paperwork, although in this case it sucked that you couldn’t do anything about that yourself. But it’s a risk that is totally uncorrelated with the market, and although at some point I will probably participate in something that will not workout, I think that as long as you get paid a big spread the overall end-result will be more than satisfactory. This one certainly was!

Disclosure

No position in Tejoori anymore

In the beginnen of this year I bought a small low-conviction position in Tejoori. The company had substantially sold all their assets at that point in time, and my guess was that it would soon fully liquidate. Tejoori took their sweet time though on making this decision, and if you would have asked me in the past couple of months if I would have wished I never invested in the company I would have said yes. “Luckily” trading stock on the SEAQ segment of the AIM market isn’t possible without incurring huge frictional costs, so I never bought or sold any shares after establishing my initial position. Last week the company announced that it would fully liquidate and return to shareholders its cash balance of approximately $17.6 million.

The company doesn’t provide an estimate of liquidation proceeds, and while knowing the cash balance is nice it doesn’t tell us how many liabilities are remaining on the balance sheet and how much costs will be incurred to finalize the liquidation. However, I suspect that there are no meaningful liabilities left. At the end of 2016 the company had $19.0 million in cash (and Wakala deposits) with total liabilities of $1.4 million for a net equity of $17.6 million. Since the company has a minimal amount of cash burn (less than $200,000 annually) I would conclude that most liabilities should have been extinguished given that the remaining cash balance is now close to the previous net equity number.

With the stock trading at $0.50/share the potential upside is significant. If we would budget half a million to wind down the company, net assets value per share would be $0.62 for an upside potential of 23.5%. For a liquidation that’s a pretty big spread, and I couldn’t resist increasing my position. At the same time I’m still not willing to bet too big on this. I deeply distrust the average AIM listed company, and so far Tejoori hasn’t done a lot to stand out positively.

I also wonder how the liquidation will be executed. The company is planning to hold a vote on delisting the company later this month, followed by a second vote at a date to be determined to authorize the liquidation. There should be no problem with passing the first vote. They need a 75% majority to approve it, but only from the votes present. If 51% of the shares vote that is sufficient, and if this threshold isn’t reached the meeting is delayed by one day and the threshold is lowered to 33%. Management owns 16.42% of the outstanding shares, and will vote in favor of the delisting, so this really shouldn’t be a problem.

After the delisting the company is planning to cancel their CREST facility (electronic depository), and I’m not sure what exactly the impact is of this move. I own my stock through CREST, so I’m wondering how liquidation distributions will be made if this facility is cancelled. Secondly I’m wondering if this will impact the second vote required for starting the liquidation. Shareholders who own shares in uncertificated form also vote through the CREST system.

Disclosure

Author is long Tejoori

Earlier this year I bought a small position in Tejoori. After selling substantially all its assets the company consists solely of cash, and cash like instruments. My thesis at the time was that the Tejoori would eventually fully liquidate, and distribute the cash to shareholders. Since then nothing has really happened, and the company has remained noncommittal in distributing the cash. In the latest interim report the same language as in the previous report was used that promised that there is the intention “to return to shareholders a certain proportion of the cash generated from the sale of the Arjan Plots”.

Locus Capital has decided that things have taken long enough, and is trying to start an activist campaign with the intention to get management to return all shareholder capital. In order to get this kick-started they have created a Google Sheet to collect the information of fellow shareholders who have a similar goal. I suggest you fill it out here if you are a shareholder.

Disclosure

Author is long Tejoori

Tejoori Limited (LON:TJI) describes itself as a investment company that invests in ethical and Sharia compliant ventures around the world. Like many companies listed on London’s AIM market the track record of the company is truly terrible. After IPO’ing in 2006 for $4.90/share the stock saw more than 99% of its value evaporate. Since 2015 the stock has been able to recover a bit from a low of $0.03/share to the current price of $0.39/share. The reason for the big recovery is that Tejoori started selling all its assets and last week the company announced that it has signed an agreement to sell its last remaining asset (a plot of land in Dubai) for a gross consideration of US$5.8 million. Last year the company managed to sell two other plots that generated most of the cash that the company now has on hand. Assuming that the sale of the final plot goes through without problems the balance sheet of Tejoori looks as follows:

As you can see, the company has only cash remaining on the balance sheet together with some receivables and some small liabilities. The “other receivables” are related to an earlier sale of some assets, but apparently the acquirer has so far been unwilling to settle the remaining amount. I have applied a 50% haircut to account for this, but being a bit more conservative might also be warranted. The receivable is related to a sale in 2013, so it’s long overdue:

During the year ended 30 June 2013, the Group successfully replaced the Lagoons plots for alternative plots in the Arjan project located in Dubai, UAE. USD 0.6 million of the additional costs incurred on the exchange of plots was payable by the acquirer which has been added to the earlier receivable of USD 3.1 million. However, the acquirer has refused to settle the balance due to the Group. While the negotiations are ongoing to settle the dispute, no impairment has been recognised.

While the company has at this moment basically sold all its assets the big question mark is: will it actually fully liquidate. Tejoori has communicated its desire to return a part of the cash, and given its current small size I don’t see the point of trying to remain in business. In the latest annual report the company wrote the following:

The Company intends to, as previously stated, return to shareholders a certain proportion of the cash generated from the sale of the plots undertaken to date and it intends to finalise these details following the sale of the third Arjan Plot.

The Company is, in conjunction with its advisers, considering the most effective and efficient manner in which to return cash to shareholders and following the disposal of the third plot the Company will update shareholders further. The Company is also, as part of this review process, evaluating the merits of the Company maintaining remaining as an AIM quoted company given the costs associated with the listing.

I expect that the company will fully liquidate after selling the last land plot earlier this year, but it might take some time since they first need to settle the unpaid receivable and if legal steps needs to be taken that might potentially take significant time and money. But I expect that a large part of the money can be and will be returned to shareholders already this year. But since the company hasn’t fully committed to a full liquidation this remains a bit uncertain.

One thing that is positive is the current operating costs of the company aren’t that high. Last year administrative and other operating expenses were $177,500. Presumably this amount could be lowered significantly if the company decides to delist from the AIM. But with ~$18 million in equity and a ~$10 million market cap there is I think a sufficient margin of error. A few years of operating expenses isn’t going to destroy all potential upside.

Conclusion

As a holding company holding only cash (when the last transaction is completed) this is a very simple situation. If you think that this cash will most likely be returned to shareholders you have a great deal, if you think the company will find a new way to light money on fire it’s not attractive. Given what Tejoori has done the last year, and what they have communicated I think it’s very likely that they are going to continue to do the right thing. At the same time, this isn’t a super high conviction idea and since trading costs are also very high on the AIM market I made this a small position. I think it’s still a pretty good addition to my basket of special situations.

Disclosure

Author is long Tejoori Limited