Rams shareholders sold out by managementThursday, 4 October 2007
Glenn Dyer writes:
Shareholders in Rams Home Loans group who have been gutsy enough to hang onto their shares are entitled to feel a bit miffed about the way they have been stiffed by gutless management and founder John Kinghorn, who not only sold them an overpriced, over-hyped business back in July, but has now turned around and sold them down the drain to Westpac in a cheap, opportunistic deal.
Kinghorn got over $600 million from the float and hangs onto it, the shareholders have lost heavily, and Westpac has screwed a great deal out of the floundering carcass of Rams
But if you look at the sharemarket reaction, another view can be mounted: that Rams is dying and it’s a case of everyone for themselves, with 206 million of the 353 million shares traded since the Westpac deal was announced on Tuesday.
The shares fell heavily on both days to end at 48c yesterday, which valued Rams at just over $169 million: seeing Westpac is paying $140 million for the name and outlets (or 40c a share), that puts a value of 8c on the income streams and value of the $14.5 billion in existing mortgages remaining with Rams. They were off another cent this morning at 47c just after the opening.
Merrill Lynch values that mortgage pool at 55c a share (and the whole company around 69c a share), so according to the market the mortgages have a value of 7c a share or so, based on the Merrill's figures.
But someone or some people must see value in Rams: after all there have been buyers for those 206 million shares sold and they could be getting the rump of Rams for next to nothing. If the shares sink to around 40c today then the mortgages have no value whatsoever, which is rubbish.
Kinghorn and UBS sold Rams in late at $2.50 a share and they were pummeled in August when it couldn't refinance $6.17 billion of short term commercial paper here or in the US or European markets because of the credit freeze.
It's a damaged brand and if the company was in administration, there would be bidders looking for the mortgages, rather than the brand name of the outlets, which would have very little value. So Westpac has gone Vulturing (screwing a hard nosed deal out of a company that couldn't really resist).
To support his actions, Kinghorn does a patsy interview with the Australian Financial Review (and no one else) where he claimed Rams was a case of 'sell or shut the door'. He says it's not a great outcome for shareholders and they have at least got something.
That might be the case, but did he and the company sell to the first bank that wandered buy, or was there an auction and this was the best they could get? There has been no mention of any attempt to drum up an auction or maximise the price.
Therefore the shareholders should be asking if the board flogged the brand name and franchises too cheaply and would be entitled to ask at the special meeting of shareholders, if there were other bids for the company.
The deal allowed RAMS to yesterday finally price a $300 million mortgage-backed bond issue: that was originally set down at $250 million. $291 million were sold at a margin of 0.53% over the one month bank bill swap rate.
Westpac controls the company's fortunes by offering to finance between $1.5 billion and $2 billion of existing debt between now and the shareholder meeting next month.
Merrill Lynch said yesterday that: "While the deal with WBC does increase the probability that RAMS is able to refinance its XCP, the price WBC is paying for the franchise is largely reflected in the current share price and we therefore maintain our Neutral call.
"Prior to today’s announcement we had attributed 65¢ of value to RAMS’ franchise going forward. Therefore, while RAMS is subject to “no-shop” and “no-talk” provisions in its agreement with WBC, we would not rule out another counter bid for the RAMS franchise, '' Merrill Lynch said.
And what about UBS, the investment bank that sold Rams into the market in the last glorious deal before the great credit freeze struck?
Well it told clients yesterday that: "We believe this is an important step for mending WBC’s underinvested retail bank WBC expect the deal to be EPS dilutive in year 1 (<1%) & accretive in yr 2. The transaction values each RAMS store at $1.5m, c15x NPAT of an immature bank branch (100k NPAT); however we see significant upside to this post successful integration. We note that WBC has proven to be a good buyer of assets in the past (BT 2002)."
Not a mention of the value of the deal to Rams shareholders.
UBS worldwide is not in good odour at the moment: billions of dollars of losses, billions of dollars of still dodgy loans on its books, the head of investment banking and the group chief financial officer (Australian, Clive Standish) have been 'retired'. And of course there's the ill will the monstering of fund manager Paul Fiani suffered before leaving over his opposition to the opportunistic bid for Qantas: which would have generated fat fees for UBS.
No wonder they don't want to draw any more attention here to embarrassments like Rams. _______________________________________________
The debt figure shown in the prospectus (standard IPO key offer stats section) of $136.6 million.
According to the prospectus and subsequent 2007 financials.....Corporate net debt consists of $108 million of Corporate debt (included with Debt issued at amortised cost). plus $29.3 milion loan from a related party.... SPE's cash and cash equivalents and mortages have a net nil balance to all liabilities.
Current mortage book is therefore 7 cents.....too cheap.
Have gone very long today. Very confident here but could takes a couple of weeks for significant share price appreciation.
RAMS Australian mortage backed securities is different to that in the US........even Westpac boss in a CNBC interview suggested these securities (ie RAMS home loans)....are rated high grade.
See original application for what turned out to be a $300 million bond raising from yesterday....prior to the offering they had flagged were prepared up to 60 basis points.......but got it away at 55 points.
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Rams takes bonds path for funds Created: 2007-9-27 Author:Laura Cochrane
RAMS Home Loans Group Ltd, the Australian lender that last month failed to refinance US$5.3 million of short-term debt, plans to sell mortgage-backed bonds to ease funding shortages.
The Sydney-based company will start marketing A$250 million (US$218 million) of bonds backed by Australian mortgages, Warren Williams, a deputy treasurer at Rams, said in a phone interview with Bloomberg News yesterday.
Rams will offer up to three times the yield premiums it paid on debt in June, three people with knowledge of the transaction said, to attract investors as the United States subprime mortgage rout hurt its ability to obtain financing.
Rams must raise funds after the US commercial paper market, from where it got more than 40 percent of its funding, shut down in August.
The company is seeking to pay 55 to 60 basis points more than the bank-bill swap rate, said the people, who asked not to be identified before the terms are set. A basis point is 0.01 percentage point. Williams declined to comment on the pricing.
Rams paid 19 basis points more than the same benchmark on A$433.5 million of debt on June 29. Macquarie Bank Ltd, Australia's largest investment bank, priced A$485 million of top-rated bonds on September 20 at a yield premium of 40 basis points, the nation's first sale of mortgage-backed securities in more than two months.
Rams is offering A$242.5 million of securities with the top Aaa rating, Williams said. A further A$3.5 million of bonds rated one level lower at Aa1 and A$4 million with the third-highest investment grade rating of Aa2 will also be sold, he said.
The top-rated bonds have an average life of 2.8 years and the rest are expected to mature in 5.1 years, Williams said.
The bonds are secured by a pool of loans sold by Rams, 18.43 percent of which are so-called low-documentation mortgages, Williams said. These require less documents and income proof than standard mortgages.
National Australia Bank Ltd and Royal Bank of Scotland are arranging the sale. Terms will be set by October 3, Williams said.
Rams said last month it will increase funding from Australian residential mortgage-backed securities to A$4.07 billion from A$3.8 million after failing to refinance A$6.18 billion of short-term debt in the US.
Local non-bank lenders face slowing demand for their mortgages after the fallout in the US subprime-mortgage sector increased borrowing costs, Australia's central bank said on Monday. The biggest deposit-taking banks, which can fund loans off their balance sheets, may benefit as they pick up the lost business, the bank said.
Rams, which listed on the Australian Stock Exchange on July 27, rose 3.5 Australian cents to 98.5 Australian cents at the close in Sydney. It has fallen A$1.515 from an IPO price of A$2.50, making it the worst-performing initial public offering in Australia this year.
More than 110 companies in the US have halted some mortgage operations or exited the business since the start of 2006 amid the worst housing slump in 16 years, a rise in overdue payments and record foreclosures. _______________________________________________
Talking to the company and will have lots more to offer.
