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What happens in a case where a person is shorting a stock intending to buy it in a day or two but in meantime it is put on longterm suspension. All along this person is not in funds to pay for the stock. Where do they stand there? They may unexpectedly have to sell down other assets and if in a massive quantity can cause a significant butterfly effect. Is this scenario possibly what has happened? We never quite know all that is going on behind the SP volatilities as the background stories are never reported and I wish that they were.
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In reply to: EMD on Saturday 16/02/08 08:16pm

Really? You mean the Stella sale is not a done thing? So they are, after all, going to ask the shareholders about it? really ? really? I wish they could keep Stella as it was one of the more attractive assets which lured me to invest in MFS. As soon as I did invest, they are offloading Stella and SP is crashed and the stock is suspended bigtime. Agghhh!!! Yuk

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QUOTE (Avenger @ Saturday 16/02/08 08:32pm)

Hi Avenger

 

I agree totally with your observations on short selling and the need for REAL laws for the financial world.

 

I was trying to explain some of this to my brother today and reflected on the following anaolgy:

 

Imagine a scenario whereby you bought a $600,000 home and used a mortgage of (say) $300,000 to finance it.

 

You made all payments on time every month but just the same, the Bank has included some clause in your mortgage whereby - if for some unimaginable reason the value of the home dropped to $300,000 there was a loan "covenant" in place that allowed the Bank to automatically sell out from underneath you.

 

Well...I cannot imagine any scenario where such a covenant would exist on a mortgage nor a situation where property prices could be forced down that far across the whole market.

 

Yet, in the stock market it CAN happen:

 

Banks DO have loan covenants and collusion CAN force down share prices if the surrounding market sentiment presents such a situation....and then loans are in default requiring re-financing and share price panic sets in!

 

Look at the mess we are in today..all over the FRONT PAGE of the newspapers for 2 days now.

 

What a mess.

 

So..like I say, maybe MFS didn't have the greatest, most bullet-proof business strategy going around BUT it was a viable one; it was generating REAL cash flow and REAL profits; its Funds Management was delivering good returns and paying all distributions on time; and even though it was probably overvalued at $4.00, perhaps even $3.50..they had REAL net tangible assets and the stock really was worth something much more than 99c.

 

Surely under NORAML market conditions, this business would not be blowing up? Is it really fair to be hammering the management and board to the extent we are - in the media, and on these forums?

 

Oh well...maybe it can be avoided for the next company that comes along but it looks to be too late for Australia.

 

I think the ASX has a lot to ponder over in the next few months - INCLUDING the question of "what" constitutes justification for suspensions such as this current one for MFS...even if just to clarify OUR understanding of it.

 

All the best

 

Coop

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Hi EMD,

 

It is too late. If the Board is replaced, how long do you think it would take for a new Board to come in get a grip of the situation?

 

Agent Coop

 

I have never critised management for the way they ran the company. I have never been in the stock. I was attracted by the fall as I like to catch falling knives. My only gripe has always been the suspension and how this affects small shareholders.

However, a superficial review of the accounts and the debt told me that something didn't add up. See my prior posts. This was confirmed with the sale of Stella. The sale price was $500 M to 700M below the stated value. Now I know they got screwed because it was a distressed sale, but don't you think they could not have called in another party in and got an extra $300 M and still at a bargain?

Also, if the valuations were any where correct, why on earth did the ex CEO need $550M to "restructure"? I asked before, but was ignored. $550M is a staggering amount to "restructure" Was it to retire debt? The gearing didn't appear to be too high.

 

Regards

 

 

Avenger

 

 

 

 

 

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In reply to: Avenger on Sunday 17/02/08 07:34am

Kiwi MFS suspended on news of a wind-upBrought to you by

Anthony Klan | February 12, 2008

THE New Zealand arm of embattled financier MFS has been suspended from trading indefinitely after announcing plans to wind up its major financing arm in a bid to repay about $300 million in investor funds.

 

MFS Pacific Finance, the fundraising arm and major operating company of MFS New Zealand, announced it would enter a "moratorium" while attempting to repay 12,000 investors in the fund from loans it had made to property developers.

 

"The moratorium will allow MFS Pacific to conduct an orderly realisation of its loans and investments but will be subject to approval by investors and to obtaining any other regulatory approvals," the group told the NZ stock exchange yesterday.

 

However, the plan will hinge on struggling Gold Coast-based head company MFS Ltd -- which is currently also in an indefinite trading suspension -- providing MFS Pacific Finance with additional funding.

 

"We believe it is clear that the moratorium, coupled with an agreement with MFS around its future funding of MFS Pacific, will result in improved returns for investors than would otherwise have been available," the company said.

 

In the absence of a moratorium, which MFS Pacific plans to take to investors early next month, the company is likely to be placed in administration.

 

The trustee behind the group, Perpetual Trust, said MFS Pacific Finance had suffered a "timing problem" between the repayments of loans to developers and the maturity of loans it had received from investors.

 

"It wasn't an issue of a run on redemptions, it was a cash-flow problem at the time of repayment of interest and normal debenture maturities on January 31," Perpetual Trust chief executive Louise Edwards told The Australian.

 

The Gold Coast MFS Premium Income Fund last month froze redemptions on $770 million of investors' money, citing a run on redemptions in the wake of problems with listed Australian head company MFS Ltd.

 

Ms Edwards said it was "unlikely there will be any other outcome" than winding up MFS Pacific Finance because of the company's inability to pay its debts.

 

MFS Pacific Finance said a "critical component" of the timely wind-down of the group through a moratorium would depend on a cash injection by MFS Ltd.

 

MFS Pacific hopes to obtain that funding via a "put" agreement it holds that can force MFS Ltd to take control of any loans the company had made that were more than 90 days overdue.

 

MFS New Zealand chief executive Jason Maywald has declined to return numerous calls from The Australian this month.

 

According to a New Zealand newspaper, MFS Pacific Finance had $45.5 million of loans more than 90 days in arrears at its September 30 balance date.

 

A spokesman for MFS Ltd said any payments to MFS Pacific would be investigated as part of the company's "strategic review".

 

MFS Pacific Finance said MFS Ltd would provide funds to the group from the sale of majority stake in the Stella tourism business last week, but the amount to be paid had not been negotiated.

 

 

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