PaperlinX scores a First

I’m reliably informed that PaperlinX is the first credible* issuer to voluntarily stop a hybrid distribution.  5 year chart of PPX vs PXUPA direct from the ASX

Why is PaperlinX doing this?

*The term credible is used to eliminate CMI and its hybrid CMIPC which are subject to shenanigans by a board with unabashed financial self interest.

All hybrid distributions are discretionary and non-cumulative which allows ratings agencies to classify ‘debt’ as ‘equity’. To not pay a distribution affects an issuer’s reputation.

PaperlinX missed two distributions on PXAPU in 2009 which was accepted by the market as a necessity. Subsequently, distributions were paid for Jun 2010, Dec 2010 and Jun 2011. SPS Trust Distribution History

To everyone’s surprise, PaperlinX announced at its AGM on October 21 that the Dec 2011 distribution was not being paid. Full details at Solvency vs Ethics.

Why PaperlinX’s decision is surprising is that those issuers that haven’t paid in the past have been on the slippy slope to oblivion. Scary thought!

It’s so scary that post GFC new hybrid issuers such as Woolworths and Origin Energy have included a cumulative provision for up to five years, refer Attack of the Hybrids! by Christopher Joye. 

Why is PaperlinX doing this?

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Names offered as possible past defaulters include Babcock & Brown Infrastructure and Great Southern. How embarrassing to compare these two companies with a respectable paper merchant.

Babcock and Brown Infrastructure was lead astray by one over zealous Phil Green who started believing his own press releases. Please read about Babcock & Brown, and Phil Green’s demise, at here to understand why its hybrids are hardly comparable with PXUPA.

Great Southern was a promoter of tax driven agricultural schemes called Managed Investment Schemes (MIS). In simple terms, MIS investors got a 100% tax deduction in year 1 for outlaying zilch. The MIS promoter also provided 100% financing which was then on sold to gullible banks. Along the way there was a gravy train of introducers’ fees. The whole deal was held together by tax office ‘rulings’ for each scheme. Does this business model sound like PaperlinX?

Anyway, both Babcock and Brown Infrastructure and Great Southern no longer exist.

It would be remiss of me not to briefly detail the activities of CMI Ltd, an issuer well capable of paying dividends on its ordinary shares and distributions on its preference shares. A good starting point is an excellent piece of investigative journalism by Bryan Frith at here.

The directors of CMI are crooks already facing criminal and civil proceedings in New Zealand. I cannot imagine the directors of PaperlinX wanting to be compared with the directors of CMI.

So if we eliminate the crooks, frauds, artificial tax schemes and manic high flyers that appear with every equities boom market; which other issuers have voluntarily ceased hybrid distributions? 


Just one - PaperlinX.