BCS - BrisConnections Unit Trusts

[cuttlefish]

Re: Brisconnections shareholders - financial ruin

I still don't understand why this stock hasn't been suspended to prevent people from falling into the trap.

 

[Julia]

Re: Brisconnections shareholders - financial ruin

I still don't understand why this stock hasn't been suspended to prevent people from falling into the trap.

Cuttlefish, if there is someone prepared to buy - as Enzyme has pointed out and is confirmed by screenshot of market depth - then wouldn't it be unfair to all the existing holders who are desperate to sell?

E-trade still have the $1 paid, $2 to be paid in bold letters on the order screen. Can any Comsec user have a look and see if they have added this to their website?

 

[Enzyme]

Re: MAFCA - the next BCSCA

It is no longer just Brisconnections laying this trap. As dogby pointed out on the previous page, Multiplex Prime Property Fund (MAFCA) is in the process of turning into another Brisconnections. They are just like Brisconnections in late October/Early November last year.

MAFCA suspended their dividend two weeks ago. The share price has plunged to $0.01. Anyone investing $1k at this price will get a $40k liability to be paid in 2011. There are a lot more sellers than buyers and I can't see any reason why they will not hit the same $0.001 floor that Brisconnections have. If that happens then any buyer investing $1k will get a $400k liability!

 

[vincent191]

Re: Brisconnections shareholders - financial ruin

Someone just brought 1,000,000 Briscon shares.

$1,000 for a $2 million debt.

Why would anyone do this??? I don't understand.

 

[Enzyme]

Re: Brisconnections shareholders - financial ruin

Why would anyone do this??? I don't understand.

Sorry, I'm not sure which bit you mean.

If it is "why did someone just give themselves a 2 million debt buy buying $1,000 worth of these shares" I guess the answer is that they didn't realise the liability associated with these shares when they brought them.

If it is "how is it possible to get such a massive debt for investing just $1,000" then it will take a bit longer to explain. Try starting with these:

http://business.smh.com.au/business/how-will-mrs-he-find-the-65m-20081109-5kvl.html

http://business.watoday.com.au/business/another-brisconnections-bolt-from-the-blue-20081125-6his.html?page=1

 

[cuttlefish]

Re: Brisconnections shareholders - financial ruin

Cuttlefish, if there is someone prepared to buy - as Enzyme has pointed out and is confirmed by screenshot of market depth - then wouldn't it be unfair to all the existing holders who are desperate to sell?

E-trade still have the $1 paid, $2 to be paid in bold letters on the order screen. Can any Comsec user have a look and see if they have added this to their website?

My view is that the stock should have been suspended well before it reached 1c and definitely before it hit .01c. Once it became an illogical purchase for retail investors and not reflecting a true market then it should have been suspended.

The person that bought stock today is highly unlikely to have been a multimillionaire that can afford the $2 million debt - so they are probably another uninformed/ignorant investor that has bought themselves a massive liability. I just don't see much good in one poor unsuspecting holder offloading onto another poor unsuspecting holder.

 

[thermalmonster]

Re: Brisconnections shareholders - financial ruin

Absolutely right cuttlefish.

After All the complaints etc you would have thought this would be so. However I suppose suspending it now would be an admission of guilt.



Sunder -Not after your Sympathy or anyone else for that matter.
I understand my mistakes, the cause & affect.

Thanks to the folk that have contributed fairly to the thread without patronising and be-littleing people.

 

[drsmith]

Re: Brisconnections shareholders - financial ruin

While the units should not be trading suspending them now does not solve the underlying problem and could create now ones. If suspended it's easy to imagine the lawyers slugging out over "You denied me the right to be able to offer the securities for sale on the market".

The honorable (and perhaps most practical) solution would be for the underwriters to create a market for the securities by offering $0.001 per share on market for those who wish to sell.

 

[Julia]

Re: Brisconnections shareholders - financial ruin

While the units should not be trading suspending them now does not solve the underlying problem and could create now ones. If suspended it's easy to imagine the lawyers slugging out over "You denied me the right to be able to offer the securities for sale on the market".

Yes, It's along those lines that I was thinking, i.e. that it just wouldn't be right for current holders not to have the right to legitimately sell them on the open market.

I understand what you're saying, Cuttlefish and appreciate the logic, but wouldn't it also be creating an unacceptable precedent? On what basis would the lawyers say the stock should have been suspended?
If the PDS clearly stated the stock's status and both E-trade and NAB (and perhaps other brokers we don't know about) also clearly stated that status on the Buy screen, I don't know what more could have been done.

(Here I'm absolutely not meaning to be critical of BCSCA holders but rather thinking of how lawyers would approach it.)

So do you feel any stock should be suspended from trade after it reaches some arbitrary low? How would this be determined?

Seems like a real minefield to me.

Wouldn't any potential buyer realise there was a problem with simply looking at the market depth?

Another possibility which may be completely wrong: could that purchase today have been BCSCA itself attempting to 'create a market', or Macquarie doing this?

 

[joeyjoejoe]

Re: Brisconnections shareholders - financial ruin

i must admit todays trade really gives me no joy to know that one persons nightmare has ended and one pour souls has only just begun.

it dosent change anything really..

its just as likely to end up back on the sell side at 0.01 very soon with no outcome..

 

[cuttlefish]

Re: Brisconnections shareholders - financial ruin

Julia, I understand where you are coming from but the head-in-the sand approach that the ASX has taken to this irks me enormously.

They could introduce a rule that margin needs to be lodged before people can purchase that level of liability - but thats probably too hard to implement from a systems point of view. The whole ASX self regulating thing is a bit of a joke imo.

 

[sails]

Re: Brisconnections shareholders - financial ruin

I don't understand why the ASX don't require a basic educational standard for instalment shares BEFORE being approved to trade them. Something similar to that which is already in place with derivatives.

Broker software currently disallows trading in derivatives unless separate paperwork is filled out and relevant, basic education material (PDF files available online) has been read.

I would think that would be a win:win all round. It would keep uninformed investors out while allowing informed investors the ability to trade these unrestricted. If new people don't bother to read the educational material, then they really do have themselves to blame.

 

[GreatPig]

Re: Brisconnections shareholders - financial ruin

Broker software currently disallows trading in derivatives unless separate paperwork is filled out and relevant, basic education material (PDF files available online) has been read.

In theory. In practice all you have to do is sign the paperwork to say you've read said educational material, but you don't have to actually read it.

Of course you could then say that it's your own fault, in that you should have read it before you started trading derivatives, just like you should read every PDS before trading those instruments, just like you should read every licence agreement before using new software, just like you should read every word of your mortgage agreement before signing on the dotted line, just like you should read...

It's getting to be like the boy who cried wolf. So many of those things you should read are a waste of time, that you're likely to assume the same about things that actually are important.

GP

 

[sails]

Re: Brisconnections shareholders - financial ruin

In theory. In practice all you have to do is sign the paperwork to say you've read said educational material, but you don't have to actually read it.

Of course you could then say that it's your own fault, in that you should have read it before you started trading derivatives, just like you should read every PDS before trading those instruments, just like you should read every licence agreement before using new software, just like you should read every word of your mortgage agreement before signing on the dotted line, just like you should read...

It's getting to be like the boy who cried wolf. So many of those things you should read are a waste of time, that you're likely to assume the same about things that actually are important.

GP

GP, I had more in mind something like this 4 page booklet found on the ASX site: http://www.asx.com.au/markets/pdf/optionssimpleguide.pdf. People are more likely to read a short document with the basic, but important, facts than to wade through a 100 page PDS in legal speak.

Might only need to be a couple of pages but at least it could explain how the increasing ratio of debt vs. investment moves into alarming levels of debt, particularly as the share price drops to extreme low levels. It could point out the danger should there be no more buyers. Some examples would help - bcsca would be a good one to include. It could also state the necessity of reading the relevant PDS before trading.

Obviously all other precautions should remain in place such as every effort being made to ensure that potential investors are properly informed and also brokers ensuring adequate notification of further debt before the point of sale.

You obviously don't like my suggestion. Do you have any better ideas on how to help prevent ordinary Mums and Dads, often new to the share market, falling into a trap such as this?

 

[Enzyme]

Re: Brisconnections shareholders - financial ruin

Poetic justice anyone? link

The PDS document states that chairman Trevor Rowe and two other directors of the BrisConnections board must spend a percentage of their annual pay buying the toxic stapled units.

"Trevor Rowe will receive a base fee of $210,000 per annum and $10,000 per annum for chairing remuneration and nomination committees," the document states. "Forty per cent of these fees will be directed to the purchase of stapled units on market."

They are the same BrisConnections stapled units that flatlined at 0.1 ¢ each on November 23, and haven't budged since.

Indeed, if Rowe has been spending 40 per cent of his weekly $4230 pay packet on the units since November 23, the chairman should have bought about 16.92 million of them in the past 10 weeks alone. The instalment payments due on those shares would be $33.84 million.

It's a similar story for directors Richard Wharton ($110,000 a year) and John Allpass ($130,000 a year) who, under the plan, must spend 20 per cent of their pay on BrisConnections stapled units.

That would be another 9.2 million units bought by the the directors since November 23, and a whopping $18.4 million of debt.

Okay. I know didn't quote the entire article, and the bits I left off kinda change the result a bit, but I just couldn't spoil such beautiful irony

 

[Prospector]

Re: Brisconnections shareholders - financial ruin

Indeed, if Rowe has been spending 40 per cent of his weekly $4230 pay packet on the units since November 23, the chairman should have bought about 16.92 million of them in the past 10 weeks alone. The instalment payments due on those shares would be $33.84 million.

They must be off market then because there have hardly been any sales showing in the market depth. And if there had been, the people on this forum would have had their problem solved.

 

[Enzyme]

Re: Brisconnections shareholders - financial ruin

The salary deductions that will go towards buying the stapled securities have so far gone into a trust account. No shares have been purchased so far. They will be purchased on or around the last week of June. Obviously after the first installment.

Sorry, I didn't quote that bit from the original story and that was misleading. It just sounded so much better without including it.

 

[drsmith]

Re: Brisconnections shareholders - financial ruin

The salary deductions that will go towards buying the stapled securities have so far gone into a trust account. No shares have been purchased so far. They will be purchased on or around the last week of June. Obviously after the first installment.

Based on the above those directors will still have a keen interest in the share price after that installment, particurally if it remains at or near $0.001.

 

[cuttlefish]

Re: Brisconnections shareholders - financial ruin

The salary deductions that will go towards buying the stapled securities have so far gone into a trust account. No shares have been purchased so far. They will be purchased on or around the last week of June. Obviously after the first installment.

Sorry, I didn't quote that bit from the original story and that was misleading. It just sounded so much better without including it.

Its still an interesting situation ... he is still liable for another $1 on the warrants that he does purchase before end of June - and its highly likely the post 2nd instalment price will still be well below $1.

In some ways its unfortunate that he didn't have to purchase them right now - because I'm sure once in the same predicament as all the other poor people caught out by this he'd possibly be taking a MUCH more proactive approach to a fair and equitable solution.

 

[Enzyme]

Re: Brisconnections shareholders - financial ruin

I agree it is an intriguing situation.

I had assumed that the fact that Trevor Rowe would be getting paid the BrisCon shares component of his salary after the first instalment date would mean that he wouldn't have a liability problem. That he could sell his shares easily. But this might not be the case. I've just had a quick look at River City. If you take them as guide there might still be no market after the first instalment payment. RiverCity has a LOT in common with Brisconnections. Indeed Brisconnections could be seen as a clone of RiverCity:

- both are toll roads in Brisbane;
- both were setup to pay dividends out of capital until the roads were opened and motorists started paying;
- both were stapled securities with instalment payments;
- both suspended their dividends late last year when the markets hit troubles (BrisCon's $0.005 dividend is effectively a suspension)

But RiverCity has a few things going for it that BrisCon doesn't:
- all of its instalment payments have already been made;
- It is 18 months from completion. Paying customers are on the horizon. BrisCon are three and a half years away from seeing a paying customer.
- most of their construction risk is behind them. They've done more than 75% of the work and are on track. The chances of them hitting a snag or technical problem that could delay their opening diminishes by the day. BrisCon has just started their work so they have more risk that they could hit problems;

With those factors in mind, there can't be any doubt that RiverCity is a better placed company than BrisConnections. The RiverCity price is currently down 84%. If that same performance was applied the BrisCon (and that could be generous for the reasons given) then the BrisCon price would be 48 cents after the full $3 has been paid. It is seems entirely possible that they could still be 'trading' at $0.001 after the next instalment.

My very rough estimate has Rowe purchasing about $46,000 (after tax) worth of Brisconnections shares on or around 30 June. He really could be looking at a $46 million liability in 2010 if things don't improve, or if he doesn't resign soon to try to avoid the liability. I wonder if he resigns before 30 June does he have to get paid out his accumulated component in BrisCon shares? Could we see the chairman and directors all resign to avoid being paid in their own stock?