margin call story in smh

Margin call threat over up to 17% of MFS shares
Stuart Washington April 2, 2008

SHAREHOLDERS in the beleaguered financial services firm MFS, now known as Octaviar, face the disruption of margin calls over up to 17 per cent of the company's shares when the entity finally resumes trading.

Yesterday Octaviar released details of margin loans over the holdings of a director who was appointed last week, Chris Scott, saying he had a loan over 17.2 million shares, or a 3.6 per cent stake in the company. Mr Scott holds another 5.2 million shares in Octaviar.

Octaviar also took the unusual step of releasing information about possible margin loans held by two former directors: the former managing director, Michael King, and a former joint managing director, Philip Adams. Octaviar said Mr King, who founded the business and who presided over a disastrous conference call that sent the shares into a spiral, held a 6.7 per cent stake in the company; Mr Adams held a 6.5 per cent stake.

However, the company was unclear about the margin loans held by the two men. "Based on information provided by brokers, the company understands [the men] have margin loans secured against some or all of their shareholding in the company," it said in a statement.

The disclosures follow clearer guidance by regulators about the need to reveal margin loans over directors' shareholdings. The extra details about Mr King's and Mr Adams's holdings are understood to have been provided as a result of informal queries by the Australian Securities Exchange. MFS shares have been suspended since January 23, originally because of its eventually successful sale of a stake in its tourism business, Stella, but have remained suspended because of the company's inability to release an interim report.

MFS shares fell 75 per cent in the days before it was suspended from trading at 99c, freezing shareholders' investments in the company.

Yesterday's disclosure of the margin loans over a potentially large proportion of the shares raises the prospect of forced sales as soon as the group trades again. The company aims to have the suspension lifted by late this month.

Also yesterday, the former MFS Diversified Group, now known as Geo Property Group, announced it would, under pressure from the banks, sell off assets to reduce its debts by $125 million by June 30 next year.

It also said it would need joint venture partners for its communities development division's land bank projects, which were valued at $1.5 billion last year.

The negotiations with a syndicate led by BOS International also includes a renegotiation of bank covenants that appears to give Geo some interest relief as it pares back its investment portfolio to $200 million, down from the $351 million it reported last year.

Shares in Geo were suspended from trading on February 29 when it announced it had breached a covenant in its loan from BOS International. It expects to renegotiate the banking agreements by April 14, and intends to remain suspended until then