Quick Quiz: What can't you do if a stock is suspended? Answer: you can't short it. What can't happen to you if your stock is suspended? You can't be margin-called.
And what would you do if you were David Coe and the Allco Principals?
While his friend-turned-foe, Lance Rosenberg, is desperately trying to find a buyer for teetering broking house Tricom, David Coe and the Allco principals have dived into the bunker. With Allco firmly, safely suspended from trading no one can short it now. No one will be margin-called. Coe can try to find a buyer while asking Ferriers for its opinion on the solvency of the disentegrating Allco empire.
This is critical, for nobody except Coe and his inner circle understand Allco. If the whole schemozzle ends up in the courts - as it well may - the principal concern of the Allco principals would be an 'independent' advice on the solvency status of the assorted Allco entities. Hence Ferriers.
All along Allco was a confidence game. They deliberately built a bewildering spaghetti mud-map of corporate entities - leveraged at every conceiveable point - designed to impress banks and stockmarket punters into parting with their money. Particularly the latter.
'OrigInination' is one 'buzzword' which helped. There were a lot of buzzwords. Origination means concocting, then marketing, some structure which impresses people enough to write a cheque out. Some structure like Allco HIT (hybrid investment trust). The only thing hit about Allco HIT, however, was its shareholders. There was good demand for AHUGA. Acronyms abound. One entity - to the great mirth of rival structured finance cognoscenti - is actually called MIST.
By concocting all these 'structured' vehicles and snipping a dollar from retail investors for the pleasure of owning one of these fine securities, Allco executives could then simply take that dollar to the bank and borrow more money. As this dollar was recycled so many times through the density of the Allco structured maze it will be difficult for Ferriers, let alone anyone else, to work out what the value of Allco really is - if there is any value left.
Confidence is now gone so the jig is up for Allco. You can't raise money - and that's what these boys do for a living - if no one believes your story anymore.
The high watermark was a couple of years ago when founder David Coe was splashed on the front of the Fin Review in a photo with Macquarie's Allan Moss and Babcock & Brown boss Phil Green. Caption: "Masters of the Universe''.
The heroic treatment often proves a jinx.
Even two years before that, this reporter was poking fun at Allco for its turbo-charged paper shuffling, pointing out that there was 'more disclosure on the CIA websiite' than on Allco's.
They were unfailingly courteous for three years despite being derided as a house of cards but for the past three days not a phone call has been returned.
Like the mess which is the financially-engineered Centro, Allco and its advisors now face the vexing problem off how to unravel the mess they have created, a mess which worked so well when rates and interest spreads were moving in the right direction; down that is. It will take time. The complexity is a problem of their own creating. They are hoisted by their own petard, you might say.
And here is the state of play. First move, suspend the stock to stop the bleeding. Two, get Ferriers to evaluate the solvency position to protect executives from potential lawsuits. Three, cancel all spending on unnecessary items such as billion-dollar US power station deals which have yet to be funded with other peoples' money. Four, do the 'work out'.
Right now, there are buyers for parts of the Allco empire - the real assets that is, buried in the macrame maze (though, like Centro, cross collateralisation will be a problem).
There may be buyers for the real assets but there will be no buyers for the structures. Vale shareholder wealth.
It may be too early to pen the obit but it is time to make the call - Allco is over.
AFG Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
(20min delay)