gsw's posts on forex

Gsw,

I have agreed with many of your posts over the past year or so. But I certainly do not agree with your posts today on SBN’s financial management. Neither the content nor the sentiment.

For a start, ‘playing the money markets’ is a misnomer. That suggests gambling or recklessness. The issue is whether or not the company should have hedged. Maybe there was an argument for it but, at the time, many analysts were thinking that the US$ was going to be further trashed so the potential for making a ‘loss’ from hedging was also there at the time. Many companies and individuals would be in the same position. Have they all recklessly ‘played the money markets’?

I really can’t understand why anyone with a stake in the company would put the worst possible spin on this situation.

There has, of course, been a substantial devaluation in the AUS$ but that could reverse any time.

Moreover, your suggested ‘loss’ of $600,000 only applies if there is no reversal in the exchange rate (over the life of the funds – ie to the second half of next year) and no offsetting increase in receipts (which is highly likely from initial Chinese orders, Bioscreens split cup, Mexico, CMM, and new Oraline 8 markets).

You are really drawing a long bow to imply that none of that will happen!

But lets just look at the possibility of a $600,000 currency ‘loss’ over the year (if that actually happened – but which is unlikely because of the offsetting income potential).

The company’s business plan could accommodate that.

Just look at the Rights Issue Prospectus. That pointed out that, in the event of a full subscription (which is what happened) the company would be able to fully fund all its initiatives and still have $1.5m working capital.

With the forex losses, that could reduce working capital to around $1m – which would still be enough to get through to July 2009 – at which time the company’s main prospect (China) should be done and dusted. At this point, it will be easy to raise additional funds if necessary (via a placement – perhaps to existing top 10 shareholders).

In other words, the 100% Rights Issue has given us a buffer that allows us to cope with the forex situation – even if it does not improve.

But, as suggested above, the forex losses (due to increasing 2009 income offsets) may not be anywhere that large. So there may be sufficient funds for well beyond July 2009.

This is the classic ‘making a mountain out of a mole hill’. Why would you do it?

Actually, I really do not know what you are on today gsw.

One minute you are saying that the company is negligent and playing the markets and that “ the possibility of going back to the market in this climate terrifies me and without forward sales predictions we are all in the dark”

Then a few minutes later you say to someone wondering why so many sell orders have appeared “we are in very nervous market times. I don't think it has to do with SBN specifically”.

Sounds a bit schizoid – or something - to me!