A horror share story

[Pushka]

Those of you who enter into share forums may already be aware of this horror story, but for those of you who dont, I am reeling from the financial implications (total bankruptcy in fact) of this for people who have unwittingly purchased into this share arrangement. Thinking of course they were buying into a company that is developing infrastructure for Brisbane, thinking it 'safe'. But it could well spell the end of everything they planned for themselves and their children.

The name of this is Brisconnections, the share code being BCSCA. You would think when buying 'shares' through online trading, the only risk is that the share goes belly up and you lose all your money. Bad enough. But the trick with BCSCA is that you not only face that risk (which did happen) but when you buy, you also buy the liability to pay $1 per share in April, then another $1 per share a few months later. OK, still not a particular biggie when the initial price was around $1 on release. But the share price has fallen to less than 1cent, so people who think they are getting a bargain in infrastructure by purchasing several thousands of shares, are buying themselves millions of dollars in liability!

In the IPO, there was full disclosure of the risk; now they are trading on the internet, there are NO SUCH WARNINGS.

Buying just $2000 worth of BCSCA incurs a debt of $4,000,000

Normally you could sell them before the liability falls due; trouble is, now the problem has been realised, there are millions of shares on offer, and no buyers. And the companies behind the IPO are Macquarie Bank, and they are saying they will enforce the payments!

Last night I read a post where someone bought only a few hundred dollars worth; they are facing losing everything - their home, assets, and their daughters future inheritance. They say it seems so surreal except for the heart palpitations, the shakes, the tears, the gut pain & the FEAR. All because of a couple of errant clicks.

Such a shocking, goddam awful place to be.

 

[willair]

They say it seems so surreal except for the heart palpitations, the shakes, the tears, the gut pain & the FEAR. All because of a couple of errant clicks.
.

Sounds like a normal week on the ASX to me..willair..

 

[buzzlightyear]

I must be slow, but how do share owners become personally liable for the debt of the company?

 

[Perp]

For the sharemarket gurus: is there any way of knowing - from codes or some info field etc, ie other than reading the PDS - when a share comes with a future debt like this?

I'm feeling sick for those people who bought $2K worth of this share, too, Pushka...

 

[Pushka]

The 'shares' were like the Telstra instalment system launched for T2 and T3, pay a bit now, pay a bit later on. You are not taking on the debt as such, but making an instalment purchase, which, unless you sell the shares, is your liability not the company's liability. People who purchase through online trading are not warned that their purchase is only a part instalment, and that they will need to pay more later on. And when the instalments are less than a cent each, when you order as few as $500 worth, that is a lot of liability.

Ozperp, the best way to avoid this is to only buy shares that have the three letter code. Options and the like always have more letters.

 

[Perp]

Thanks, Pushka, I knew, but hadn't clicked, about the 3 vs 5 letter codes... still, what a disaster for those who thought they were risking at most $2K.

Has the investment become fundamentally flawed? Or is the heavy discounting related to the obligation to make instalment payments?

 

[Pushka]

Has the investment become fundamentally flawed? Or is the heavy discounting related to the obligation to make instalment payments?

I think it has now, because people who have unknowingly bought these shares have no way of paying the liability. A Chinese Lady bought $32,000 worth; she was just an average person, hubby self employed; but because the shares were so cheap, she ended up with 60% of the company. And a multi multi million dollar liability. She was the first person who raised the alarm - she got lucky - a couple of weeks ago a mysterious person bought them off her.

The first I heard was in the share forum, a few weeks ago someone initiated a post (a newly arrived person who spoke French and not great English) who was confused by the arrival of a letter which talked of his liability of $350,000. Thankfully for him, people suggested he take some action to avoid the liability (which was to sell them but you cant tell people to do that on a forum) and he got lucky, some other poor person bought themselves a 'bargain'

 

[Pete_d]

Has the investment become fundamentally flawed? Or is the heavy discounting related to the obligation to make instalment payments?

There are a lot of questions about this. In some ways it could be considered that the shares cost $3 but only $1 has been paid off, so the shares are sitting at $2.01 (0.01 + $2 to be paid). A 33% fall from listing price when the market has fallen 50% and highly leveraged companies even harder hit.

In term of the investment its self it is a toll road and will have a relatively stable income once completed, but maybe not enough to cover the huge debts. Also paying distributions from debt before making a cent in revenue, construction risk as it's yet to be built, traffic risk about whether the projections are acurate (not likely) are all weighing heavy on the stock.

This appears to be a boom time project, that doesn't stack up and was sold at too high prices.

**This is not advice and is just for education purposes**

 

[topcropper]

There are a lot of questions about this. In some ways it could be considered that the shares cost $3 but only $1 has been paid off, so the shares are sitting at $2.01 (0.01 + $2 to be paid). A 33% fall from listing price when the market has fallen 50% and highly leveraged companies even harder hit.

In reality, for these stupid things there needs to be a negative price. If you buy them, you get say 70c, or $1.40, or what ever the market decided was the value but then your still up for the next payments. That's the only way it could be fair.


I feel sorry for those stung by this. Macquarie should take the hit and not try and ruin these unfortunate ordinary people. I can't see how these rotten things should have been allowed to be trading.

See ya's.

 

[austini]

Sounds like a normal week on the ASX to me..willair..

LOL

In relation to Brisconnect supposeably information about the next 2 installments was well publicised. However no doubt some innocent parties got caught out. But in other cases it was just greed at play again. Some knew the risks but thought they could make a quick buck by buying the stock very cheap and selling for a profit. Only problem was the buyers dried up.

Unfortunately it seems the be the case of buyer beware. But in future one would hope that better safeguards are put in place so that the genuine innocent don't suffer.

Cheers - Gordon

 

[grossreal]

hi buzz
it called leveraging
and with any type of leverageing especially in share, derivatives and bonds the risk increase depending on the amount of leveraging
and if you buy into a product that is very highly leveraged then these issues come up and thats why you have alot of houses in the 3 to 10 mil mark on the market at the moment.
yes it is very sad to hear of people being trapped in this type of leveraging
but having sad that and I don't wish to sound harsh here but that is the market
and as a barrister told me risk is risk
if you take it you must understand that if it goes the other way your gone.
and this type of leveraging is very successful but when a market corrects you do not only your shirt but ongoing shirts
and thats a big problem for alot of people
and I think that alot of people got into these types of leveraged position not understanding what they were doing
and if you jump off a boat on the barrier reef into shark invested waters don't then ask the captain why you just got your leg bitten off
and the analogy is the same as this leveraging is the biggest shark pool of the lot and deriviative can only be sold via a financial advicer( and don't get me started on them) an some bonds can't even be advertised
a share is a share is a share but leveraged shares,cfd's, notes, derivatives, warrants and leveraged bonds are some thing very different and they are not for the faint hearted.
I am well out of those and have been for some time and they are for the ferrari and fast car group.
oh and in hong kong I think today you can get buy one get one free in those cars as they have all been margin called
so for some it back to the push bike.
one day a roster next a feather duster.
if you want to have a look at a heart attack try looking at buying in at 2.45 and 3 weeeks later the share is 23 cents and thats one super funds now thats a bit a 97% drop in share price in three weeks.
would't you just love to see the look on that fund mangers face.
but that the market
and yes it does sound sad to hve people lose their shirts but unfortunately you can't change a market and these this can do will and are going to keep on happening as long as people don't assess risk

 

[Pete_d]

In reality, for these stupid things there needs to be a negative price. If you buy them, you get say 70c, or $1.40, or what ever the market decided was the value but then your still up for the next payments. That's the only way it could be fair.

See ya's.

That's one of the big unknown questions, what would the negative price be?

 

[Sim]

http://www.asx.com.au/asxpdf/20081024/pdf/31d3r5y5chrmh3.pdf

2nd installment liability arises for security holders on 21 April, 2009 ... 3rd installment liability arises on 21 January 2010

This means that if you haven't been able to sell your holdings by these dates you will incur the liability.

With securities currently trading at $0.001, you can invest $10,000 and purchase $10m securities. As of 21 April 2009, you will then be required to pay the 2nd installment @ $1 per security = $10m ... with a further $1 per security ($10m) liability kicking in in Jan 2010.

This means for a $10,000 investment today, you can find yourself being pursued for $20m worth of debt

If you do not want to be liable to pay an instalment, you need to have sold your stapled securities before the date when the liability for payment of that instalment is determined. You should be aware that there may be a limited market for BrisConnections stapled securities in the periods after the dates when liability for payment is determined, but prior to the installment payment dates, which may affect your ability to sell your stapled securities during these periods.

...

If you are liably for an instalment on stapled securities and do not pay the instalment, BrisConnections can take action to recover the amounts owing.

...

If the sale proceeds [from them selling your securities if you don't pay] are not sufficient to cover the amount outstanding, BrisConnections can pursue you personally for the balance. This may include the commencement of legal action against defaulting unitholders

 

[karina]

this is very unfortunate.

they should have a warning pop up on the screen when attempting to buy these shares explaining the second and third installments and providing costings of what those installments will be on given dates.

Thanks for posting this, I had no idea about all of this. Luckily I have ony bought standard shares. (3 letters only)

 

[Perp]

I'm thinking about this... none of this is in Macquarie's - or the project's - best interests, either. They want people owning the shares that can afford the instalment payments, because they need the cashflow for the project. They also don't want the negative publicity associated with liquidating unwitting Mum and Dad investor's assets.

Therefore, if (as it seems is possible), there are a large number of unwitting investors, I wouldn't be surprised if one of the project's stakeholders steps in and finds some solution, like a large investor who considers the future value of the project to be in excess of the (effective) $2.01 price today, who's willing to buy in. (Possibly with incentives.)

For the sake of the people who inadvertently got into this situation, I sure hope so.

 

[willair]

and yes it does sound sad to hve people lose their shirts but unfortunately you can't change a market and these this can do will and are going to keep on happening as long as people don't assess risk

Grossreal,you have to be a adaptable type of person to trade on the ASX in these times,it's been one of those weeks,monday TLS went backwards in a big way ,walked back in the door tuesday after taking the dogs for a walk and CBA starts heading towards 20 bucks,but as i keep telling myself the wood duck only knows one thing,the fox knows everything,still trying to work out which one i am,at the end on the day if these punters who bought into this did not do their homework,then they have a serious problem..willair..

 

[Bill.L]

Hi all,

Actually Sim, you are out by a factor of 10. The shares are .1 of 1 cent, the lowest possible price on the ASX.

There are many different causes to this fiasco. One is that the minimum purchase on market is $500. This means that someone with a minimum purchase incurs a liability of $1,000,000. Two, there is no market for these once you have bought.

This is also unlike any other form of leverage in the markets where you have to put up margin and then maintain your margin if price goes against you. This type of fiasco does not happen in either options or commodity markets (people still go broke, but cannot enter this type of liability with 3 or 4 clicks of a mouse button).

bye

 

[keithj]

I'm thinking about this... none of this is in Macquarie's - or the project's - best interests, either. They want people owning the shares that can afford the instalment payments, because they need the cashflow for the project. They also don't want the negative publicity associated with liquidating unwitting Mum and Dad investor's assets.

I'd agree that the 2nd is high on their list of priorities. However, they don't necessarily want people owning the shares, that's just an unfortunate side effect of getting the money out of them. Top of Macquarie's list of priorities is their big juicy bonus at the end of the year . We're talking about money here & Maqbank are v. good at making sure they end up with lots of it, and some say they don't really give a monkeys about how they get it.



A little anecdote....

An acquaintance did some legal work for Maqbank - when the bill came in they knocked $50K off. Their reasoning - we'd rather have that $50K in OUR end of year bonus than YOURS!

 

[Sunfish]

There are always installment warrants and other "partially paid" shares around. I think they can always be picked because they don't have three letter codes. Only "fully paids" have that and they should be referred to as "FPOs" in your buy orders.

 

[grossreal]

hi keithj
macq thou its got its issues at the moment was and is one of the most successfull models in the world at making money out of banking
and yes they make big fees but there is not alot wrong with that for me.
thats because in cuba I would be a capitalist pig and maybe shot but I digress.
and willair
not sure about adjustable you have to have the ability to take on risk and be able to have the time to recoup any loses
and both for me at my current age( and unless there is a new type of ray that turns back time) I have neither the time nor wish to take on those risks
but yes at 20 or 21 then these types of risks are a very different thing
so adjustable not sure fool hardy maybe and risky very but that just my view and I don't wish to post a three page disclaimer on don't use this as investment advice