| 2nd December 2008 |
| UNDERWRITERS of struggling toll road developer BrisConnections need to keep self-interest at the forefront of their minds when trying to navigate through the company's predicament.
BrisConnections units are only partly paid. Another $2 per unit is due to be paid by investors.
However, if the investor cannot come up with the next instalment in April next year, the underwriters, Macquarie and Deutsche, will make the contribution and take the units.
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The problem has been exacerbated by the unit price being decimated in recent months.
About a quarter of the total shares on issue are listed at $0.001, the lowest price allowed by the exchange. Some have been purchased by naive retail investors who now find themselves about to owe millions, but for the past week there have been no buyers.
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| Having no ability to sell their securities via the ASX, desperate investors will look to off-market transfers -- if they can find a willing recipient. Who knows where in the world these securities may end up, or how much harder will it be for BrisConnections to extract the extra capital from the new owners?
The underwriting agreement is said to require BrisConnections to use all reasonable measures to recover the debts. Tracing the investors and attempting to extract the millions owed may well be an expensive and ultimately fruitless task.
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As the underwriters will most likely end up owning a controlling stake in BrisConnections, forcing the company to waste funds on an uncertain debt collection process simply throws good money after bad while delaying the inevitable.
A smarter thing for the underwriters to do would be to accept transfers of units from these distressed investors for nominal consideration, save on what might be an expensive wild goose chase and fast-track the transfer of ownership. |
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A main lesson to be learnt is that the secondary market for contributing shares needs added safeguards.
The BrisConnections stock code, BCSCA, indicates it is a partly paid security. Further, the details of the additional $2 per unit that investors will have to tip in is plainly enunciated in the company's product disclosure statement, available on the ASX continuous disclosure platform.
Despite this, there are still many investors who did not know what they were getting themselves into.
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The fact that every $1000 worth of units they buy will result in them having to pay BrisConnections another $2 million is something that needs to be put up in flashing lights before executing the trade. A rule stating that the broker must remind the client of this obligation before executing the order would have averted the problem in most cases. Internet brokers could perform the online equivalent. Too many people have been caught out for the ASX to sit idle.
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| BrisConnections chairman Trevor Rowe, who is also an ASX director, is best placed to fix both the liquidity problem and the issue of broker safeguards. If he is successful, history will paint him as the hero, rather than the villain of this debacle. |
