Did a huge mistake - bring me your lights please

Hi everybody,

first of all, I apologize for my typo, I’m French, so my English is still perfectible.

I leave a message here because I probably did a huge mistake in doing a trade.
Today, I bought 175000 share of BCSCA - BritConnections - at 0.003$, so not even a cent (my trading floor is at 500$). I wasn’t aware of this sentence first (well, of the exact meaning):

“STAPLED SECURITY PAID TO $1.00$2.00 UNPAID”

I feel now really uncomfortable when I read few things about that.
Can someone tell me exactly what I will have to pay with this? What are the risks?

Thank a lot for you help.
Benoit

Gees, mate seriously, you got to get sharp especially to trade and make a profit in this market....

Brisconnections is effectively worth -----minus because it is a partly paid share with a $2 instalment to be paid, I'm not sure when....so effectively you have assumed a $2 liability for each and chances are it is not worth $2

Not sure how they will pursue it though cause what happens in these situations, lots of people won't pay and they actually 'auction' the remaining security to 'investors.'....but I'm not sure what happens when people won't pay.

Thank you for your answer Rainmaker.

Actually i was confused by the number of trade > to 100 000 share (volume). So, unfortunately, i wasn't very sharp on this trade, and i realize that after.

The first paiement is due for 29 of April next year, and the last one for the year after. So, does that mean I owe them 175,000$ for next April, and 175,000$ for the year after? Does anybody know a similar situation with another company in the past?

benhua said:

Does anybody know a similar situation with another company in the past?

Click to expand...

Check out RCY which had a similar structure of 2x $1 installments. It's second installment was due about 12 months ago. A search there may tell you what happens if you don't pay the next installment. Yet the really simple solution is sell your shares asap.

The code 'CA' at the end of the company code usually means Installments (I think), not fully paid ordinary shares. Examples include Telstra (TLSCA) and RCYCA as above.

Benhua

There was an article in the Financial Review today about the BrisConnections troubles. I didn't read it carefully but it said that Macquarie, who helped sell the float, was prepared to sue holders to get the $1 installments. See if you can dig up a copy.

These shares started off at $0.001 at opening this morning and had reached $0.003 by the time you bought. At close there are buyers at $0.003 and sellers at $0.004. I can't advise you what to do, but I know what I would do. They will probably open tomorrow at $0.003

I just remembered another thing in the Fin Review article. Apparently BrisConnect are committed to paying a dividend in March. People may be buying just to get the dividend. If so they may find it hard to unload them before the installment is due.

Let us know what you do.

Thanks Calliope and skc. I didn't see the financial rev, but at least I know what I will do anyway, selling at any price (good price if possible).
I will let you know asap what's going on.

Hopefully, everything will end off in a good way. At least, that's a very good lesson for my trading experience!!

Ok, everything is done. I sold with loss, but i feel much better now.
That's a good lesson! (and expensive lesson!!!)

It is always good to correct trading mistakes asap... just look at your fellow country man at BNP Paribas and see what could happen!!

I thought the whole point of the sharemarket was that you weren't ever liable for more than the price of the shares ? Guess I've learnt something new here too. Is this a case of a float or IPO, or is this the shareholder being liable for an additional $2 ? I don't know this company.

deadset,

With many of these style of infrastructure investments they are stapled for a very specific reason.

They don't need all the money right away. It's as simple as that. They need a bit of money to start the project, a bit to do the middle and a bit to finish it off and have enough cash reserves to last until the toll road hits target traffic (hopefully). What generally makes them attractive is that the yield they pay is standardised across the build period. So you get the full yield (or the value of the yield in shares - because they mostly prefer that to paying out money) during the period that only half or a third of the equity has been paid. (these things also get beneficial taxation treatments).

Where a lot of these investments have fallen over is the very high gearing ratio's. That's what makes these things worthwhile to the developer - using leverage to increase their level of return. But trying to refinance these things is getting much harder to accomplish and many of them are questionable as to whether they will be able to refinance. No refinance - project falls over. In this market as well the additional burden of new funds required for the project when there is little liquidity around makes everyone scared.

Personally I don't bother with stapled securities....it adds an element of risk that can be ignored in other securities.

Regards

Sir O

Sir Osisofliver said:

What generally makes them attractive is that the yield they pay is standardised across the build period. So you get the full yield (or the value of the yield in shares - because they mostly prefer that to paying out money) during the period that only half or a third of the equity has been paid.

Click to expand...

I always believed such practice of paying dividend out of capital is total rubbish. And anyone attracted to such manufactured yields are just stupid. Give me $1 now so I can pay you back 6c in the first year (aha, a 6% yield). The tunnel hasn't even been built yet, where did people think the money comes from?

Why not just ask for 94c in the first place?! I guess the investment banker's underwriting fees were based on $1 rather than 94c.

So SKC,

Would YOU buy a stock knowing it wouldn't pay a dividend for six or seven years until the road was finished and have no guarantee that it would even make a profit at that time?

Imagine YOU were trying to sell that deal. Think you'd have any luck?

Of course if that sounds attractive to you feel free to give me all your money and I'll agree to maybe pay you 7% pa in six years time.

You game?

Sir O

Sir Osisofliver said:

So SKC,

Would YOU buy a stock knowing it wouldn't pay a dividend for six or seven years until the road was finished and have no guarantee that it would even make a profit at that time?

Imagine YOU were trying to sell that deal. Think you'd have any luck?

Of course if that sounds attractive to you feel free to give me all your money and I'll agree to maybe pay you 7% pa in six years time.

You game?

Sir O

Click to expand...

You missed my point.. You are comparing two $1 shares, one pays you 6% yield (albeit your own money) while the other doesn't, then of course it is
relatively nicer to have something back.

But my point was that if you compare the alternative of paying 94c (and keeping 6c yourself for other purpose) vs paying the full $1 upfront and get your own 6c back later, the rational investor should be indifferent. In fact, the investor should prefer the 94c deal because there are less transaction costs.

I agree with you, however, that the dividend-from-capital makes the deal easier to sell. I am sure that's also the reason they are structured that way. But I also believe one is fooling themselves thinking they are investing in a stable high yield company.

Also, there is no need to capitalise YOU

In terms of playing this stock for the Dec08 diviend 5.95c has a pitfall. As the stock would need to adjust EX-div for the amount on 19Dec08. So you need to be aware possibly no bids appear but plenty of offers on that day, and going forward until Apr09 instalment payment. So buying for 0.003c now, may in affect make you liable for the $1 in Apr09, unless somebody bids 0.001c and you can get out collecting the dividend.

Concerning the possibility of defaulting on the Apr08 instalment, the prospectus states that your shares would be sold on-market, and any difference they would pursue after you, including any expenses incurred on their pursuit.

People should take not that Macquarie one of the main underwriters of the float, had a total holding of approx. 60 million shs, but in the last month has sold down their stake to just 28 million shs.

Cheers
BigJohnny

BigJohnny said:

In terms of playing this stock for the Dec08 diviend 5.95c has a pitfall. As the stock would need to adjust EX-div for the amount on 19Dec08. So you need to be aware possibly no bids appear but plenty of offers on that day, and going forward until Apr09 instalment payment. So buying for 0.003c now, may in affect make you liable for the $1 in Apr09, unless somebody bids 0.001c and you can get out collecting the dividend.

Concerning the possibility of defaulting on the Apr08 instalment, the prospectus states that your shares would be sold on-market, and any difference they would pursue after you, including any expenses incurred on their pursuit.

People should take not that Macquarie one of the main underwriters of the float, had a total holding of approx. 60 million shs, but in the last month has sold down their stake to just 28 million shs.

Cheers
BigJohnny

Click to expand...

Oh !! also, if you do not inform the share registry that you want cash div. They will DRP you into new BCSCA shs as well.

Thanks anyway for these information.
I would have prefer to read this before lol, but it's good to know that now at least.

Did you catch the announcement this morning?

The 5.95c distribution has been cut to 0.05 of a cent and postponed until after the second installment is due.

Any takers for my ~50 000 odd securities?

Hello Friends,

I have some news related to commodities. As the market it still unexpected and i hope the market is again going to some downfall.


LME metals edge lower after enormous overnight gain
Shanghai copper and zinc edge up after LME rally
Tin bounces approximately 50 percent in less than a week
Markets may have bottomed, risk opening to favour longs
Oct 30 - Shanghai copper and zinc open at their 4 pct upside limits on Thursday, chasing a huge rally in London that axiom copper jump almost 13 pct after sheer losses in the precedent two weeks.
However, London futures edge lower, snapping their best ever string of gains seeing as mid-September on profit taking, in spite of an increase in the EUR.
The greenback posted its major one-day fall in 23 years on Wednesday, as the Fed delivered an predictable 50 point rate cut and China's central bank also cut rates, raising hope that order would not sluggish as much as feared.
"Today's cascades are not enormously significant. The marketplace was vault to rise as it was extremely oversold, it was presently the timing that was in uncertainty," a metals merchant said in Singapore.
"Direction will be single-minded by equities, the dollar and all the customary economic marketplace factors that have been lashing this. However, the risk at present seems to favour being long rather than short. However we are not putting on at all big directional position."
LME copper for release in three months chop down 1.2 pct, or $55, to $4,600 a tone by 0355 GMT, bountiful up a few of Wednesday's $525 increase.
Prices have risen around 20 percent so far this week and if the market can maintain those gains, copper is set for its biggest weekly rise since September 1979. Despite that, for the month prices are down 28 percent, which would be their biggest fall in at least three decades.
"The down shift has to foot out at some point. We have seen a few real lows veteran our foot for copper is in the region of $3,500 to $4, 000," Said by Edward Meir MF Global analyst.
On Monday, price dished to $3,590, their weakest additional than three years.
"The turn down may have broken and we are set for a phase of sideways trade in 2009, much as we axiom at the beginning of the century," Edward Meir said.
Copper futures in Shanghai rose by their 4 pct threshold to 33,100 yuan ($4,838) and zinc top out at its edge, at 9,515 yuan in early on trade after London zinc jump approximately 10 pct.
LME tin cut down $25, or 0.2 pct, to $15,200. Tin price are up approximately 50 pct since plummeting to a 21-month low of $10,300 on Oct. 24.
"Tin is doing very well. Stocks are dropping, and the market is very dependent on a single producer, Indonesia, which has said it will cut production when prices fall below $15,000," Meir said.
In contrast to most other metals, tin stocks have fallen steadily during 2008. LME inventories of the metal, which is seeing rising demand as a replacement for lead in electrical solder, have dropped 75 percent to 3,815 tonnes since August last year.
By contract, copper stocks have risen 78 percent in the same period. Metals prices are 0355 GMT.
Metal Last Change Pct Move End 2007 Pct chg 08
LME Cu 4600.00 -55.00 -1.15 6670.00 -31.00
SHFE Cu* 33100.00 1280.00 +4.02 56880.00 -41.81
LME Alum 2125.00 -26.00 -1.21 2403.00 -11.57
COMEX Cu** 207.15 0.00 +0.00 304.10 -31.88 LME Zinc 1210.00 -50.00 -3.97 2370.00 -48.95
SHFE Zinc 9490.00 265.00 +2.87 18950.00 -49.92
LME Nickel 13250.00 -390.00 -2.86 26350.00 -49.72
LME Lead 1530.00 -50.00 -3.16 2550.00 -40.00
LME Tin 15200.00 -25.00 -0.16 16400.00 -7.32
LME/Shanghai arb^ 3454 Dollar/yuan 6.8365 \ 6.8368 **
1st contract month for COMEX copper
3rd contact month for SHFE aluminium, copper and zinc
LME 3-m copper in yuan, including 17 pct VAT, minus SHFE third month

If any mistake please bear.

Happy trading.