How to run up an A$96m debt for a mere A$50,000 purchase

February 18, 2009 10:30 PM

This may be one of the worst (or best) investments, per dollar, of all time: Meet BrisConnections, a toll road development corporation based in Brisbane, Australia. Normally a toll road is a very nice sort of investment, it being basically the government making people give you money, for something people have to do. Some say it's likely to return 28% or more. So why is it trading for $0.001 per share?

It turns out that BrisConnections shares came with a nasty sting in the tail: $1 per share, due twice. The sort of thing that an experienced investor is well aware of, but the kind of people who just click on "buy" buttons generally aren't, and haven't any reason to be. Meet Nicholas Bolton, now the largest shareholder of BrisConnections with 48 million shares, bought for about A$50,000, possibly even with full knowledge of the required contributions. With a $94 million debt, and very little to lose, he's going to try to force the ($4.8 billion) company to be wound up. More discussion here. (See also the story of Mrs Fang's budgerigar, which has interesting implications for money laundering through the Australian share market.)

posted by aeschenkarnos (32 comments total)

"Normally a toll road is a very nice sort of investment, it being basically the government making people give you money, for something people have to do. Some say it's likely to return 28% or more. So why is it trading for $0.001 per share? "

Because it's a toll road made out of foreskins?
posted by orthogonality at 10:37 PM on February 18 [20 favorites]

With a plurality shareholder who's a no-talent ass-clown?
posted by orthogonality at 10:38 PM on February 18

Ow. There's no way their stock is trading so low.
posted by dunkadunc at 10:40 PM on February 18

And by no way I mean no wonder.
posted by dunkadunc at 10:41 PM on February 18

The fact that every $1000 worth of units they buy will result in them having to pay BrisConnections another $2 million

I'm not getting it - is a unit a share? Is it $2 (USD? AUD?) for every share? How does the 2 million come about?

The forum link seems to discuss this, but I still can't figure out what a unit is.
posted by niles at 11:02 PM on February 18

Heh. I got it. I parsed that as "for every 1000 units they buy..". It's because it's selling for so low that $1000 is 1 million shares, which, in turn, gets you a nice 2 million to invest.

Do I get a gold star now?
posted by niles at 11:07 PM on February 18

Sometimes I think that, before people make an investment, they should be made to inscribe a pentagram inside a magic circle, burn some red candles, and sprinkle ash and ground bone onto their currency first.
posted by Grimp0teuthis at 11:13 PM on February 18

Because it's a toll road made out of foreskins?

And that's just the tip of it.
posted by veedubya at 11:21 PM on February 18 [5 favorites]

bought for about A$50,000, possibly even with full knowledge of the required contributions

Possibly? Totally aware, surely?

I ready the Finny Review article yesterday. What is he up to? Has he bought the shares and called an EGM to try and squirm out of it with some legal jiggery pokery?

I dunno if I'm dumb or the article was poorly written but I couldn't quite work it out.

How could the shares possibly drop that low? Is it because people value them at less than $2, and they'll shoot back up once the 2 x $1 tranches have been paid?

So many levels.

You have to laff at people dropping a bundle on a "sure thing."

And how about his check-me-out-ladies publicity shot? Jamie Oliver, anyone?

Pukka!
posted by uncanny hengeman at 11:28 PM on February 18

So he's chasing his fifty grand down the toilet then?
posted by pompomtom at 11:37 PM on February 18

The sort of thing that an experienced investor is well aware of

Maybe in Australia, but I've never hear of anything like that.
posted by bhnyc at 11:40 PM on February 18

Maybe in Australia, but I've never hear of anything like that.

One or two of the Telstra [massive ex-gubberment telecommunications organisation] floats had similar tranches. And brazillions of mum+dad investors bought shares in the sure thing that was Telstra.

So yeah, plenty of Australian mug punters are aware that such tranches exist. Whether or not they knew they existed on the BrisConnections shares…? Jeez, surely they'd have to have known?
posted by uncanny hengeman at 11:55 PM on February 18

Briscon share were sold in installments - three installments. So by buying the share, you also agree to pay another 2 one dollar installments per share. Same thing done with Telstra years ago.

Only Problem, Briscon is going down the drain. So everyone tried to sell the share and avoid paying the other 2 installments.

Enter now Bolton (and many others) - they bought the shares for .001 thinking "what the heck, i give it 200 bucks who knows" ignoring the fact that 2 dollars per share are still owned. So even 200 dollars will "buy" you 200.000 shares and a nice 400.000 $ commitment.

So it is not Bolton the problem: It does not make a difference to him if he has 90 or 900 Millions of debts (he has probably no assets), but the hundreds of people who are committed now for 200-300.000 dollars now are screwed - home goes and so on.

Macquarie is BTW responsible for this for Briscon will get the money anyway - and Macquarie will send the executors to the investors.

What to say ? Another big fuck-up in great Australian tradition .....
posted by elcapitano at 11:57 PM on February 18

but the hundreds of people who are committed now for 200-300.000 dollars now are screwed - home goes and so on.

No, not at all. The underwriter cops this. The mugs lose their stake, nothing more.
posted by pompomtom at 1:05 AM on February 19

Pukka!

OMG, my dreams are coming true.
posted by carsonb at 1:13 AM on February 19

but the hundreds of people who are committed now for 200-300.000 dollars now are screwed - home goes and so on.

No, not at all. The underwriter cops this. The mugs lose their stake, nothing more.

Ahem ... Are you sure?

...

THEA DIKEOS: Ramesh Velougondaiah bought over five million shares for approximately $5,000, using the online trading facility CommSec. He contacted Brisconnections and said he wouldn't be able to pay the first instalment of over $5 million in April and asked about his options.

RAMESH VELOUGONDAIAH: They said that they are going to send the debt collectors to collect this money if I don't pay after the April.



Caveat emptor...
posted by elcapitano at 2:28 AM on February 19

Don't forget: if you owe the bank $100 it is your problem; if you owe the bank $100m is is the bank's problem.

The people in the middle will probably get screwed, but if you're already on the hook for $1m or two, then there is some logic in increasing your debt further.
posted by MuffinMan at 2:29 AM on February 19

Because it's a toll road made out of foreskins?

And that's just the tip of it.
posted by veedubya at 1:21 AM on February 19 [2 favorites +] [!]

Mohel money mo' problems. ...
posted by NikitaNikita at 2:56 AM on February 19 [1 favorite]

Ahem ... Are you sure?

I'm not sure, but as per the original article, chasing down a fuckup like this isn't going to be in the interests of the company, or the underwriters (or the ASX). There's no point hassling Mr & Mrs 500CML for money they don't have. I reckon the scenario outlined in the first article is more likely, where the underwriters accept off-market transfers of the shares from the various mugs, and then pony up the call.
posted by pompomtom at 3:04 AM on February 19

RAMESH VELOUGONDAIAH: They said that they are going to send the debt collectors to collect this money if I don't pay after the April.

And they will then do what, exactly?
posted by moonbiter at 3:07 AM on February 19

(...that said, bloody oath 'caveat emptor'. What idiots are buying shares so extraordinarily (apparently) undervalued, which have a 5-letter code (so they're obviously not OFPs)? If a deal looks too good to be true etc etc)
posted by pompomtom at 3:08 AM on February 19

Also, replying to the comment No, not at all. The underwriter cops this. The mugs lose their stake, nothing more. elcapitano wrote : Ahem ... Are you sure?

From the linked article:

THEA DIKEOS: Macquarie Bank recently sold its shares in Brisconnections, but its not the end of the matter. If these small investors are unable to pay up, it will be Macquarie and Deutsche Bank who'll have to come up with the money.

STEPHEN MAYNE: I think they'll be the ones who end up stepping up and paying, but if it becomes a really big public fiasco and scandal, well then maybe the pressure will be on the Queensland Government to step in and take back an infrastructure project which a lot of people thought probably should have been a Government project in the first place.

So, yeah, the mugs are probably not totally screwed.
posted by moonbiter at 3:16 AM on February 19

How is this even legal? In America, anyway, I was under the impression that when a company wants to raise $3 per share, they sell the shares at $3. Selling them at $0.001 with a (maybe not-so-)secret rider still seems sleazy as all get-out.
posted by explosion at 3:57 AM on February 19

How is this even legal?

Part-paid shares have been around for, well, just about forever in Australia. It's legal because there is a registered prospectus containing the details. This is why most equity shares on the ASX are specified as "ordinary fully paid". The company didn't sell them at $0.001, but the market price has dropped to that point since the original issue.

I expect there are company issued options in the US? As an instrument, they're quite similar. I am surprised that there are threats to enforce the payment. Ordinarily, they'd be treated like options, and if the owner doesn't pay up, they lapse, and that's it.
posted by pompomtom at 4:03 AM on February 19

Flounder, you can't spend your whole life worrying about your mistakes! You fucked up - you trusted us!
posted by digsrus at 4:51 AM on February 19 [2 favorites]

How is this even legal? [...] Selling them at $0.001 with a (maybe not-so-)secret rider still seems sleazy as all get-out.

They didn't. They sold them at $1.00 and they immediately bombed. But you're partly right, they sold them at $1.00 with 2 x $1.00 instalments to come. And as had already been said above, not an unusual practice given the wildly popular Telstra float used such a method.

ps: At least I think they floated at $1.00. If I go to the official Australian Stock Exchange site it says "No share price [history] chart is available." http://www.asx.com.au/asx/research/CompanyInfoSearchResults.jsp?searchBy=asxCode&allinfo=on&asxCode=BCS#chart Huh?

In a perfect "sure thing" world it would be:

1. Buy in at $1.00.
2. Have a bit of a play around with your $2.00 interest free loan thanks to those TOP FUCKING BLOKES at Macquarie Bank.
3. Pay off your 2 x $1.00 tranches.
4. Shares now trading at $4.25.
5. [how do the kiddies say it?] Profit.
posted by uncanny hengeman at 5:50 AM on February 19

"I'm not sure, but as per the original article, chasing down a fuckup like this isn't going to be in the interests of the company, or the underwriters (or the ASX). There's no point hassling Mr & Mrs 500CML for money they don't have."

How does someone enter into such an agreement without proof of the ability to pay? I mean, even trading on margin in the US requires some larger amount of capital to back it than this deal.
posted by krinklyfig at 8:36 AM on February 19

Investment wisdom aside, it sure is the worst name for a firm I've ever seen. BrisConnections? Really? Sounds like a dating site for rabbis.
posted by spamguy at 11:52 AM on February 19 [1 favorite]

This reminds me of the time I converted $250 million dollars in real estate into $47 dollars in cash.
posted by Smedleyman at 12:38 PM on February 19

krinklyfig: "How does someone enter into such an agreement without proof of the ability to pay? I mean, even trading on margin in the US requires some larger amount of capital to back it than this deal.

Because it's not quite like options, and it's not quite like margin trading.

The price of the shares was $3. That price was payable in 3 installments - $1 on issue, with 2 further installments of $1 each due later. That is spelled out in the prospectus. Unlike options (which are more correctly an "option to purchase at $agreed price") or margin trading (in which the initial 'purchase' of shares is done off-market or on a secondary margin market), this is all up-front, open, visible, and (supposedly) easily understood by the average clothead.

Margins are different too, in that when you sell your shares you're still liable to pay the margin-holder back the margin amount (+ interest). In the case of the BrisConnections and similar share issues, the bunny holding the shares at the time the second installment is due (which is normally fixed, spelled out in the prosepectus and, IIRC, listed on the share holding documents) is liable.

Looks like this peckerhead saw shares at near-0.001¢, thought "Yipee! A government project like that can't stagnate forever - it can only go up from here!", and bought a shitload of them without reading the not-so-fine print on the prospectus and share documents. Either that, or he thought they'd go back up to over $1 between September/October last year and April this year...

And the truly funny thing is, it appears that even if he' successful in having the company wound up, he's still liable for the full amount...
posted by Pinback at 7:34 PM on February 19

BrisConnections is a total ripoff of MohelMatch. It's a shanda on the intertubes.
posted by snuffleupagus at 8:45 AM on February 20

"In the case of the BrisConnections and similar share issues, the bunny holding the shares at the time the second installment is due (which is normally fixed, spelled out in the prosepectus and, IIRC, listed on the share holding documents) is liable."

Wow. Fascinating. You probably won't see this, as it's days later, but thanks for explaining. I can see how that would be used in some interesting ways for short term trades, but how it could be treacherous if the deal didn't go as planned. But it's also interesting that someone who shouldn't even be playing with that sort of money can get intertwined in such a deal to the point where the inability to pay jeopardizes the company.
posted by krinklyfig at 10:55 PM on February 23