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Gold/Mining/Energy : American Eco (ECGOF, ECX on Toronto exchange)
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To: Harry_Behemoth who wrote (219)7/17/1997 11:23:00 AM
From: Russel W. Kennel   of 2841
 
You are correct as to being a financing tool. My point is the potential they have to dilute the stock into oblivion upon conversion, which is an unknown quantity, adding to all the other unknown business risks. And this one is the worst.

Yes, you are certainly naive in this regard. You haven't had the experience of seeing a stock that you have paid $8 per share for, go down to 12 cents! All due to dilution from convertible debentures which were not redeemed by the company. Most investors figure that the normal business risks may make a stock go up or down 50% or so over a year. But all that research and mental energy going into the business risk side means nothing when suddenly and without warning the value of your shares plummets when the conversions take place.

You and I provide a liquid market for a company's shares. It is that liquidity which "pays" back the company's debt to debenture holders. In other words you suddenly become the benefactor of the debenture holders, who get ALL their money back from the public stock market liquidity created by you and me, thus it effectively comes directly out of the equity you thought you had. The only way back is if the company growth over the years finally adds enough value to bring your equity back to where it was before.

The problem is that we are not consulted about becoming the "holder" of the company's debt. It is like having the rug pulled out from underneath you just at the wrong monent.

I am glad to see from another post that there are no convertible debentures after all, and whoever mentioned "debentures" in an earlier post ought to clarify further.

Russ
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