Stock takes: Syndication angst

A number of investment professionals are starting to raise concerns about the burgeoning syndicated property investment sector.

Those putting the vehicles together include real estate firms such as Barfoot & Thompson, former real estate agents such as Oyster Group and the odd distressed finance company such as St Laurence.

Some of the benefits of the property syndicates Oyster offers, according to its website, included that "the `asset' is fully managed on behalf of the group and regulated by a management agreement taking care of all financial and administrative matters".

St Laurence, meanwhile, has put together a syndicate to take a commercial property on the North Shore off its hands for $7.5 million. It will continue to manage the property.

"What organisation is monitoring and regulating the property syndicate sector?" asked Business Herald columnist Brian Gaynor, who also raised concerns about the way syndicates are marketed, related party issues, poor disclosure, exorbitant fee structures "and the prospect that investors won't get their money back".

Another fund manager views them as "another disaster waiting to happen" and wonders why investors would bother with them given most are offering only about a 9 per cent return for exposure to a single building and little to no regulatory oversight, compared with high quality listed property trusts offering yields of 14 per cent or so.

Getting sense out of the Securities Commission on this was a little like herding cats.

"Some fall under the Securities Act, it depends on how they're structured," said spokesman Roger Marwick.

If the investor ends up with an interest in the property in question the act generally doesn't apply.

Marwick explains that if the commission, in its work to maintain confidence in investment markets, has any concerns about vehicles not covered by the act, it can't say so.

That might breach Section 28a of the act.

"But if it's a proportionate ownership scheme or a partnership then it would most likely come under the act."

If they do "they need to comply with disclosure requirements, and we are obviously concerned if someone is not complying with those, and if we come across those sort of instances we look into them and we can take action".

Like the commission does with finance companies?

"Yep." Uh oh!

TOO MUCH EXCITEMENT

The prices that Nuplex's rights changed hands for towards the end of trading on Wednesday appeared to be far more in line with what you might expect, given where the shares were trading at the same time.

The rights, which have an exercise price of 23c, closed at 10.5c, giving an implied price for the new shares of 33.5c, not far off Nuplex's closing price that day of 35c.

As noted in Stock Takes a couple of weeks back, initial trading appeared to suggest a lack of understanding of how the things worked by at least some investors.

All that remains now is to see how many additional new shares will be issued to the sub underwriting institutions under the offer's top-up plan.

Then, hopefully, Nuplex can put this episode behind it and get on with business.

Some of the intrigue that has accompanied the company's capital raising appears to have been fuelled by rivalry between investment banks.

These guys can, in the words of one market watcher, at times be "very aggressive and slightly roguish".

It provides no small amount of entertainment for those with ringside seats, especially as the local capital markets can at times appear small and pedestrian.

But it's not so much fun for those caught in the middle, including the odd hapless reporter and the company itself, which probably would have preferred the whole process to have run a little more boringly.

FRESH BLOOD FOR FPA?

Fisher & Paykel Appliances also found itself the subject of speculation and intrigue around its capital position about the same time as Nuplex.

With rumours swirling of who the company was talking to regarding a new cornerstone shareholding, FPA bought itself some breathing room by negotiating an $80 million short-term extension to its $570 million banking facilities.

This runs out at the end of the month, as does a waiver from its banking covenants, so some news on refinancing must be close.

Meanwhile, market scuttlebutt has it that the company is conducting a board search at present. Some fresh blood at the board level would probably be welcomed by the market, given criticism that the company perhaps should have moved faster to shore up its capital position or even make the tough decisions on moving manufacturing capacity overseas.

SHORT SELLING REVIEW

Stock Takes has reported that some market watchers believed FPA had been targeted by short sellers during the turmoil associated with its need to raise capital.

Our sources cited the lack of stock available to borrow, implying that any that had been available had been borrowed.

NZX head of markets Geoff Brown last week told Stock Takes he challenged the notion that there was any such evidence of short-selling in the company's stock.

"Certainly in terms of what we monitor we have seen no discernable increase across the market of levels of activity in short selling."

Brown defended the NZX's current stance on short selling which is that short positions must be declared to the market operator.

It in turn is under no obligation to make that information public.

"Our response to date has been, to the extent we thought it was significant, we would disclose short selling."

He conceded that there is generally more disclosure around short selling in other markets, but "it's been a bit [of a] chicken and egg situation, there hasn't been securities lending of any magnitude so then it hasn't been a major issue".

Nevertheless NZX is in the process of reviewing its stance, "to see whether there's sufficient activity for that information to be more broadly available".

ALL THAT GLISTERS

Shares in NZX/ASX dual-listed goldminer OceanaGold have been making healthy gains since December when they hit a low of 22c.

They closed steady at 81c yesterday, reaching as high as $1.18 early last month.

February was a month of unusually high turnover for the stock. All of this prompted a "please explain" from the ASX on February 19.

The company responded, pointing towards the strengthening gold price, the weakening New Zealand dollar, its own commentary late last year indicating increased production and lower costs, and finally the release of a favourable research report in January.

But Stock Takes was this week informed of another factor that may have had an influence, namely erroneous information that was published on the NZX website and supplied to at least one local broker suggesting the company was about to pay a A25c one-off dividend.

A local investor contacted us saying he'd initially thought this was too good to be true, but his broker assured him, based on data supplied by their information provider, that it was the case.

The investor thought he'd have some of that and bought shares in anticipation of the payout, only to find out the dividend was non-existent after all.

To the firm's credit, Stock Takes understands it has made good on the investor's losses, but has done so out of its own pocket, and there is no comeback on the company that supplied the information.

The investor says the heavy turnover in the stock around the time that he spotted the bogus dividend information suggested other investors were similarly wrong-footed.

BOLTON'S HIGH-STAKES GAME

Australian business media have been reporting the fascinating story of how shaggy-haired 27-year-old Melbourne internet entrepreneur Nicholas Bolton has been gaming the complex capital-raising situation at Brisbane toll road company BrisConnections.

Bolton bought up 77 million of the units for A$47,500, becoming the largest shareholder. However, ownership of the units, much to the anguish of many investors, carries the obligation to commit to a further A$2 of investment per unit in the company.

Thousands of mum and dad investors who bought the cut-price units without fully understanding what they were getting into probably regarded Bolton as a hero when he used his heft to force a vote on a number of resolutions, including one that would have got him and other investors off the hook by winding up the company.

However, after being paid A$4.5 million to do so by construction company Leighton Holdings, which is building the road to be owned by BrisConnections, Bolton voted against his own resolution.

He is now either being pilloried for his treachery or praised for his chutzpah, depending on who's talking, but is also being investigated by the Australian Securities and Investment Commission.

A$4.5 million is a lot of money, but not as much as the A$77.4 million Bolton is still on the hook for in terms of the next instalment on his units due on April 29. The story clearly has further to run.