How NOT to make an IPO

The ongoing saga of BrisConnections is coming to a head. There's a good background piece in the Sydney Morning Herald (here).

BrisConnections is a highly leveraged business, established to build a toll road out to Brisbane Airport. The business went public last year -- in fact, their ASX debut was on the day I did my IPO lecture last semester. The units (legally it appears to be a trust structure rather than a corporation) were issued at A$1 each, with an obligation to make two further A$1 payments per unit. The first of these payments is due 29 April 2009. The ASX code (BCSCA) hints at the additional payments as fully paid shares generally have a three letter code.

By the close of the first day of trading, the units had lost half their value. The 52 week high price is 79cents, so they never traded at anything near their issue price. Currently, they are listed at 0.1cents per unit -- the lowest price allowed by the ASX. Looking at the current Market Depth on Commsec (account required), shows that there are sell orders for 33million units at that price, and no buy orders. Today's volume is almost completely accounted for by the 31million+ units purchased by Macquarie Bank (ASX announcement here).

Estimates I've heard are that AFTER paying the next $1 installment, the units will be worth 60cents (or less). This explains why some of the major unitholders are trying to have the trust wound up BEFORE the installment is due.

The most worrying part of the whole saga is the stories of retail investors who have bought the units without realizing that there is an obligation to make the additional payments. These investors owe thousands or millions on units that cost them very little. At the current price, a $500 investment comes with a liability to make two additional payments of $500,000!