MFS mfs limited

mfs six week trading halt

  1. 11,407 Posts.
    February 29, 2008
    JUST why have the shareholders of MFS been denied the right to trade their securities for the past six weeks? The company has given a couple of flimsy reasons for the suspension but could the real reason be that if trading is resumed, MFS runs the risk of being hit with heavy margin calls on the founders?

    There's increasing dissatisfaction that companies may be obtaining trading halts and suspensions for tactical reasons, with critics noting that ABC Learning this week obtained a trading halt because it had received "indications of interest" in relation to "parts of the business", and indicated that it may follow up with a request for suspension of trading.

    At the time ABC's share price was under pressure, under a combination of margin calls on some directors and heavy short selling. The trading halt breaks the market momentum and gives the company breathing space. Critics dispute whether the reason proffered by the company justifies the ASX agreeing to the trading halt.

    The ASX is aware of the unrest and yesterday sent out an updated guidance note that indicates that it may adopt a tougher stance in future.

    The ASX advised it will insist that requests for suspension or trading halts must be in writing "for release to the market" and must contain the reasons for the request. The ASX indicated that the old stand-by "pending an announcement" will no longer be sufficient. It also indicated that, in some circumstances "it may not be appropriate for ASX to suspend or halt trading".

    MFS spooked the market on Friday, January 18, when it announced a proposed $550 million rights together with the spin-off of the Stella tourism business. In one day the share price fell almost 70 per cent, from $3.19 to 99c, capitalising the company at only $480 million.

    MFS reacted by obtaining a trading halt on the Monday, followed two days later by a suspension of trading. On February 4, MFS announced the proposed sale of 65 per cent of Stella, which would enable the company to repay its short-term debt.

    Instead of lifting the suspension, MFS requested that it be continued until the company had completed a strategic review and completed the Stella sale, which was expected to occur "before the end of March".

    Arguably neither of those reasons justify denying shareholders and investors the ability to trade MFS securities.

    If the talk is right, Michael King and Philip Adams -- the co-founders and both former managing directors -- have margin loans over their shares in MFS, which can be triggered if the share price falls below $1.80. King holds 32.48 million shares, or 6.9 per cent of the capital, and Adams holds 31.5 million shares, or 6.7 per cent.

    Adams was managing director until June last year when he moved to Dubai to spearhead a push by the company into the Middle East. He was replaced by King, who resigned and quit theboard after the January 18 debacle.

    King admitted to the Australian Financial Review this week that his financial future was "extremely uncertain" and was dependent on the support of the financiers who had lent him money, and the arrangements he could make with them.

    The MFS share price actually fell to 99c on January 18 -- well below the $1.80 trigger price -- but the margin lenders may not have had sufficient time to act as the shares have not traded since then. If trading resumed there could be a risk of margin calls against the co-founders.

    MFS last month revealed that it had $443 million of long-term debt, $300 million of unsecured notes maturing in December 2011 and $100 million of unsecured notes held by a fund managed by Challenger Financial Services, which mature in November 2011.

    There are suggestions that the sale of Stella could have implications for MFS if it were to take the company's net asset value below $280 million.

    If that were to happen it's suggested that the long-term debt may be able to switch from unsecured to secured, and may even be able to require repayment.

    MFS's asset position is unclear. The company is yet to release its December half results and this week disclosed that it had sought an extension from ASIC of its March 15 statutory deadline because material events over the past five weeks had led to "difficulties in finalising the appropriate carrying values of tangible and intangible assets".

    TODAY is the deadline for the Allco satellites -- Allco HIT (AHI), Allco Max Securities (AXQ) and the Allco Hybrid Investment Trust (AHU) -- to report their half yearly results.

    Investors will be looking to see if any light is shed on whether the existing incestuous relationship between Allco Finance Group (AFG) and its major shareholders can continue; in particular whether Allco Principals Trust (APT) and its subsidiary Allco Principals Investment (API) will be unwound, or whether they have the financial capacity to continue.

    They will also be looking for guidance as to the outlook for two listed Allco hybrid securities -- the $250 million of PoDs (AHUGA) and $130 million of Alleasing Hybrids (AHU).

    Both securities have a face value of $100 but investors aren't hopeful. The PoDs have been suspended from trading since February 11, but last sold at $27; the Alleasing Hydbrids remain listed but are now selling at only $8.11.

    APT was established to act as a co-investment vehicle with AFG, and its mandate is to invest in AFG shares and co-invest with AFG in its core asset classes.

    The ordinary units in APT are owned by the major shareholders of AFG and it also has preference shares which are held by AHI on behalf of AHU.

    AHU obtained the funds to acquire the preference units from the $250 million public issue of PoDs. The PoDs are convertible into shares in AFG.

    Until last month APT held 45.8 million AFG shares, which was more than sufficient to satisfy the conversion of the PoDs. But that was before margin lenders sold 22.1 AFG shares.

    API negotiated a standstill over the remaining 23.7 million AFG shares, but it has not been documented, and all parties are currently considering their position, which raises the spectre that the remaining shares may also be sold up.

    If that were to happen the outlook for the PoDs would appear to be bleak.

    And if that's the case it's likely to result in some hard questions being asked. Allco Managed Investment Funds Ltd (AMIFL) as the responsible entity for APT, and another wholly-owned subsidiary Allco Funds Management Ltd (AFML), is the manager of its investments.

    So why were margin loans taken out over the AFG shares, and exactly who authorised it? It wouldn't surprise if this issue ultimately ends up in the courts.

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