ABS a.b.c. learning centres limited

the curse of margin lending

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    CHILDCARE moguls Eddy and Le Neve Groves have been forced to dump $34 million of stock in their ABC Learning Centres business as the company's share price nosedive triggered margin calls on their loans.

    ABC shares yesterday fell as much 69 per cent and were placed in a trading halt this morning.
    It was revealed today that Mr Groves, who yesterday refused to say how much stock he had been forced to jettison, sold a $14 million parcel of eight million shares at $1.85 apiece.

    Mrs Groves's parcel of 11 million shares went at about $1.83 a share, netting just over $20 million.

    The couple join two other ABC Learning directors who have been forced to dump millions of dollars worth of shares in the company, prior to the stock being suspended from trade on the ASX this morning.

    ABC director David Ryan revealed he had sold his entire stake of 249,000 shares.

    Fellow board member Martin Kemp dumped a whopping 7.64 million shares, leaving him with 2.76 million of the company's stock.

    Mr Ryan sold 249,101 shares yesterday at $1.89, netting a total of $472,046.

    Mr Kemp has sold $16.8 million worth since Friday, offloading 2 million at $3.75 per share on February 22 and 5.6 million yesterday at $1.66 per share.

    In a response to an ASX query regarding the company's share price volatility yesterday, ABC Learning said its directors might be required to sell their holdings because of margin calls.

    Chief executive Eddy Groves acknowledged yesterday he and a number of ABC directors had entered into margin lending arrangements to buy shares in the company. But he refused to say whether he had been forced to sell any shares.

    Even today, the company was quiet on the matter - though margin calls had already been made on two directors' holdings of ABC shares.

    "The directors do not intend to voluntarily sell their shares in the company and will only sell if required to do so by their margin lenders," was all company secretary Matthew Horton told the ASX.

    A margin call arises when the value of your investments drops below an agreed lending ratio.

    When stock values fall below an agreed level, lenders make a margin call, a demand that part of the loan be repaid immediately, either from cash, assets or from selling the stock itself.

    Earlier, ABC revealed it had received offers to buy parts of its business.

    ABC shares have been placed in a trading halt at the request of the company.

    "The company expects the discussions on this matter may take longer than the two business days trading halt period," the company said ina statement.

    "If this occurs the company will request a voluntary suspension for a short period."

    ABC said its shares would remain in a trading halt until an announcement is made, or by the commencement of trading on Friday.

    ABC has reassured parents that services are not in jeopardy despite the company's value plunging a massive $760 million yesterday.

    Chief executive Eddy Groves ruled out lifting fees or closing centres.

    The flamboyant Brisbane entrepreneur and his wife Le Neve, who have grown the business to 1000 childcare centres since they started in 1988, suffered a paper loss of at least a $60 million and may have been forced to sell stock when shares in the ABC Learning Centres chain went into a tailspin.

    Shares plunged almost 70 per cent within minutes of the market opening after Brisbane-based ABC shocked investors with a 42 per cent profit plunge. The market closed with stock in ABC down 43 per cent at $2.14.

    In an effort to stem the mass sell-off of its shares and ease parental concerns, Mr Groves yesterday said the company was running fine.

    He said parents had no reason to be worried about centres shutting down or receiving less funding.

    "There's no effect on the business," Mr Groves said.

    He "absolutely" ruled out any changes to childcare fees or sales of childcare centres.

    Mr Groves – who is famous for his love of helicopters and fast cars and also owns the Brisbane Bullets basketball team – said he was "shocked" by the market reaction.

    ABC caught in gloom

    Outside the Fortitude Valley ABC Learning Centre yesterday afternoon, 24-year-old Jordana Ashling said she would be worried if the centre had to close because of the company's financial trouble.

    "There's not a lot other than ABC – they're huge, and it's really hard to get into places with waiting lists," Ms Ashling said.

    Mr Groves suffered heavy losses as his 20.2 million shares in the company tumbled $32.3 million in value to $43.2 million. His wife took a $27.2 million hit to her share portfolio.

    Mr Groves repeatedly refused to say if he had been hit with a margin call.

    "I won't comment on my personal situation," he said. He would say only that he would meet stockmarket requirements, which are to file any change in his holdings within 48 hours.

    ABC blamed the profit fall during the six months to December on one-off costs and earnings from its operations being skewed to the first six months of this year. But several analysts found it difficult to figure out the underlying profit result, despite Mr Groves maintaining it was "fairly clear".

    That murkiness, plus ABC having operations in the slowing US economy and concern about its debt levels, were a bad mixture for a jittery sharemarket.

    with AAP
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