This was published 15 years ago
Bang on the ASX door - it does have a role in instalment mess
By Elizabeth Knight
The thousands of shareholders facing potential bankruptcy when forced to stump up an additional $2 a share for BrisConnections should be banging on the door of the Australian Stock Exchange. It has failed them all, both in terms of disclosure and the provision of some mechanism to trade these securities.
This is the sharemarket equivalent of a lay-by - you put down a deposit and pay the rest in instalments. The difference is that you legally take ownership of the share when you make the downpayment and have the liability to pay the rest. You can't leave the goods at the shop if you can't pay off the rest.
These types of securities, called instalment receipts, have been used before - the best known example was Telstra. But they were issued in better sharemarkets than the one we are now in.
Instalment receipts can easily become toxic in a rapidly falling market.
When BrisConnections was floated, its shares were sold at a price of $3 - $1 down and the remainder to be paid in two $1 instalments.
BrisConnections has a value, but the first instalment is less than worthless - it's negative.
The trouble arises because the total value of this company is only about $1.33 per share - less than half of the $3 issue price.
The company's share price on the stock exchange is 0.1c - and there is a $2 liability attached to it. So its hardly surprising that anyone owning the stock does not want to pay the second and third instalments.
In theory, if an investor wanted to get rid of the potential liability he would need to pay the buyer 67c.
But there is no mechanism to trade stocks that have negative values on the ASX. There should be. Plenty of far more complex derivative products are traded on the exchange.
The ASX would argue that it is not its responsibility. However, it was happy enough to take the BrisConnections listing fees and a commission on the trades.
A contingency position that would allow some kind of trading of stocks that have instalment receipts is arguably its responsibility.
If an initial public offering sells shares with a $3 value ($1 upfront and $2 to pay) it is not that surprising that the price could fall below its initial instalment value. There are plenty of companies that have fallen by more than 50 per cent.
The ASX attitude is akin to all care and no responsibility.
And then there is the issue of disclosure. Sure there are some BrisConnections investors who knew what they were doing and took a punt. But there were plenty who bought in at 0.1c and were unaware that there was a liability attached. Many of these are said to have acquired their shares through online brokers like CommSec.
These will be unsophisticated investors who were not adequately warned about the liability attached to buying this apparently cheap stock.
Now they are in the position where they cannot sell their shares because clearly there are no buyers now that there has been sufficient publicity about the upcoming instalments.
However, many of the investors who unwittingly bought the stock in recent months do not have the money to pay even the first instalment. They will be keen to support the move by the renegade shareholder Nicholas Bolton, who amassed almost 20 per cent of the company for next to nothing, to call a shareholder meeting to wind up the company and escape the $2 a share liability.
BrisConnections has said it will be chasing the shareholders for the money, and one of the company's creditors, Macquarie Bank, is using the courts in an attempt to stop Bolton from calling a shareholder meeting to wind up the company.
Macquarie is waiting for the money that BrisConnections will receive from the first instalment receipt to repay a bridging loan to the company. It also went into the market this week and picked up 8 per cent of BrisConnections in an attempt to use its vote to block Bolton's move to wind up the company.
And where is the Australian Securities and Investments Commission when the small investors need protection?