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Media magnate Kerry Stokes looks to have been the victim of a sting focused on the company's $500 million worth of redeemable, convertible preference shares. David Rowe
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by Tony Boyd
The sprawling industrial and media empire of billionaire Kerry Stokes is being targeted by rumour mongers ahead of the release next week of full-year financial results.
This is a classic case of "rumourtrage" that deserves closer scrutiny by the regulatory authorities. However, it would appear that in the first instance the ASX has been happy to stand back and watch.
Chanticleer understands that Seven Group Holdings has not received any queries from the exchange under continuous disclosure listing rules despite the plunge in the price of its listed perpetual securities.
An ASX spokesman confirmed that issuers of bonds and preference shares are subject to listing rules, including continuous disclosure.
Stokes looks to have been the victim of a very sophisticated sting that has focused on the company's $500 million worth of redeemable, convertible preference shares. TELYS PLUNGE
These securities, which are called, Transferable Extendable Listed Yield Shares (TELYS), have plunged in value over the past month from about $80 to $62.99 on Thursday.
The fall in the price of the TELYS, which have face value of $100, picked up steam this week. They have fallen by 12 per cent in three days.
The trading volume in these securities is the highest in about five years.
Multiple sources said on Thursday that they had heard the story that Stokes would not pay the dividend on the TELYS. The rumour was heard on both equity trading desks and fixed income trading desks.
That is an extraordinary rumour to take seriously because the TELYS include a clause called a "dividend stopper".
This means that if a dividend is not paid on the TELYS then a dividend cannot be paid for a year to shareholders of Seven Group Holdings.
The company has paid a dividend of 20¢ every half year for the past six halves. The dividend is critical to the cash flows of the Stokes family which owns 67.87 per cent of the company. Every 20¢ a share dividend delivers the family $40 million in fully-franked return.
Market sources said listed preference shares were usually traded by buyers out of Asia. 10-YEAR LOW
Rumours which drive down the prices of preference shares can feed into the normal equity of the company. That has happened with Seven Group Holdings. Its shares are trading at a 10-year low.
The company will not release its results until next week but it will not be bullied into making any comment about its dividend.
That is entirely appropriate given that the final decision about dividends is the preserve of the board of directors.
Seven Group Holdings has $800 million in debt but it also has about $1 billion in investments in liquid securities.
The board of Seven Group Holdings would be acutely aware of its responsibilities under continuous disclosure. It would have made an announcement if its previous guidance had changed.
Analysts at Goldman Sachs have predicted that Seven Group will deliver a profit of about $234 million for the fiscal 2015 year.
The fall in the price of the preference securities has posed an interesting question for potential investors.
The running yield has risen from about 9per cent to 11 per cent because of the plunge in the price.
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