Ann: Change of Director's Interest Notice, page-209

As a commercial banker I'll throw my 2 cents in.

Banks take on and manage credit risk. Their reward is to collect a margin while a customer has a facility. The aim of the game for banks is to maximize their reward whilst lowering their risk. Macquarie bank aka the millionaires factory is very good at this. The way I see it this deal can be split into two parts.

Deal 1 Paul Hoppers loan.
We'll never no the specifics of the contract, but its likely Paul has a line of credit or equity line with Macquarie for $10,000,000. Macquarie's risk is that Paul defaults on the interest repayments and or principal repayments. To mitigate this Macquarie would likely have taken a personal guarantee against Paul and have asked him to put up some collateral (127M shares or $11,648,000 on the weekends close). Again we don't know the specifics of the contract but I would say with assurity there is margin call covenant within it. That should the share price fall Paul would have to tip in cash, or provide additional security to keep Macquarie's equity position positive.
Macquarie's reward would be to charge Paul a line fee on the full $10M, plus they'll be making a margin on any money he borrows.


Deal 2 - maximizing profits. The shares remain in Paul's legal ownership, but would be transferred to Macquarie bank as the Chess sponsor supported with a mortgage / security agreement. As Chess sponsor Macquarie can then lease out Paul's shares to short sellers for an additional income stream (packaged up as a fancy financial derivatives - so no shares actually change hands). The risk to Macquarie is now the share price rises the lessee who has opened a short position does not have sufficient funds to buy them back. For those of us who have trading CFD's or futures contracts, the lessee has to stump up cash collateral to take out a position. If it moves against you, you get a margin call, and Macquarie would close out the contract before there is no equity.

So Macquarie don't have a short position on IMU. They could not care less if the price goes up, down, or sideways. All they do is it quietly in the back ground collecting interest and fees. As bank do, they transfer the risks back onto the customers. Paul has risk / exposure if the share price falls, the lessee of his shares has risk / exposure if the share price rises.

My sense is that Macquarie would have given a Paul a pretty good deal on this 10M line, or at least to keep it open. As I feel there is institutional investor demand to short the stock. Once IMU went into the ASX 200 lots of index funds had to purchase the stock. If IMU leaves the top 200 these index funds will sell. In addition as IMU falls faster then the index these funds need to re weight their IMU holdings. The retail depth of field on any given day is not sufficient for these larger players. So instead of flooding the market with sales I would say they are hedging their positions with shorts until sufficient buys can be found. Or can do a cross trade with their long potions against their short position should IMU leave the ASX 200.

Depending on your bias you can be supportive of Hopper for borrowing money instead of liquidating 127M shares on market, and say he hasn't sold because he believes the stock will be worth more in the future. Or you can be critical of him for using his IMU stock as collateral for his loan instead of something else due to the indirect facilitation of shorts.

Personally I am neutral on the topic, and place much more importance on the company's clinical trials and if they can ink a commercial deal. If Hopper can pull this off, the short position will evaporate in an instant.