ABC TV 7.30 Report on Hybrids & PaperlinX is here

Check it out here

QUIZ - Guess the NTA of PPX at 31Dec2011

Why a quiz now?                        Twitter: @PaperlinXsuX

1.      For fun, which is badly needed by anyone associated with PaperlinX at present;

2.      A bottle of quality Australian wine should be sufficient to soften your disappointment with PXUPA generally, without any permanent damage to health; unlike stopped distributions which have now seriously damaged your investment income and capital; and

3.      Bonding of PXUPA holders as we prepare to vote on acquisition proposals.

Question:	What will be PaperlinX’s reported Net Tangible Assets (NTA) per share as at December 31, 2011?
Prize:	A bottle of quality Australian wine valued at $50.
Clues:	Clue #1 PPX has 609,280,761 shares on issue as at Dec 28, 2011 - source AFR Clue #2 Clue #3 Clue #4 We know the estimated loss, see here, but what will be the impairments?
Eligible Entrants:	1.      Everyone.  INSIDERS and Whistle blowers especially welcome. 2.      You need not be an investor in PaperlinX to enter. 3.      We won’t bar entry by directors, employees and agents of PaperlinX and its subsidiaries; or its professional advisors such as Auditors and the RE of the PaperlinX SPS Trust (or their families).
Closing Date:	Exactly seven (7) days before release of the figure at  PPX announcements on ASX.com NOTE: As a guide, PaperlinX usually releases its half year results in the third or fourth week of February.
Form of Entry:	1.      Entries to be specified in the form of three decimal places of a dollar (e.g. $0.316); and 2.      Negative values are permissible.
Overseas Winners:	Overseas or remote Oz winners will be provided with the cash equivalent as freight costs on wine are prohibitive.
Conditions of Entry:	1.      You must identify your name, address and contact details - otherwise how do we deliver the Prize?; and 2.      One entry per person; and 3.      If you wish, explain in less than 100 words how you arrived at your figure for the NTA. This is for interest only and doesn’t affect determination of the winner. Nearest correct entry wins. Be a winner.
What if PaperlinX doesn’t publish its NTA?	1.      Highly unlikely. The NTA for Dec 31, 2010 was published here on page 3, 2.      If the NTA isn’t published for December 31, 2011, no winner will be announced and the $50 will be sent to PaperlinX for donation to its social club or its favourite charity.
Privacy:	We won’t reveal your identity other than the initials of your given & family names, and general location; such as “RS of Brighton, UK”.
Publication of Results:	1.      On the Closing Date, we’ll publish all entries on this blog in a form as shown below; and 2.      We may progressively publish entries before the Closing Date.
Tied Result:	The first entry received at PaperlinXsuX@gmail.com will be declared the winner. NOTE: 1.      This is why we must publish all entries on or before the Closing Date, and intend publishing progressive results if warranted; and 2.      It’s also why we specify three decimal places of a dollar.

Send your entry in this form to PaperlinXsuX@gmail.com

Name:	Robert Smith
Address:	Brighton, UK
Entry:	+0.100
Optional Explanation:	Estimate a write-down of goodwill in the EMU countries of 17¢.

Sample Format of Published Entries

Entry	Date	Entrant	Your Optional Explanation
+0.100	Dec 28	RS of Brighton, UK	“Estimate a write-down of goodwill in the EMU countries of 17¢”
-0.050	Dec 31	FK of Brighton, VIC Aust	“Pure guess, but must now surely be less than zero”
+0.107	Jan 6	JJ of Scoresby, VIC Aust	NA
+0.033	Jan 13	AT of Toronto, Canada	“Derived by regression analysis”

PaperlinXsuX on National TV

Twitter: @PaperlinXsuX

As previously mentioned, we had expected an ABC 7.30 piece on Hybrids before Christmas. It screened on Tuesday, 27 December and should soon be available for Australians on iview at  Updated 31 Dec 2011 Check it out here In a few days we’ll have a version here for non-residents. Why the delay? I was interviewed and filmed on Tuesday 6 December. At that time the ABC expected it would go to air within days; however the EU, RBA rate rise, boat people etc ….were obviously more topical.

Why Orr is Awesome

Open letter to James Orr, Company Secretary of PaperlinX.

I asked him three questions. 

Going public wasn't my first choice. Read of five documented instances where I believe Mr Orr has seriously erred.

Finally, the straw that broke the camel's back.
On 14 December I wrote a brief letter to PaperlinX asking a few simple questions. The Company Secretary refuses to answer them. Non-negotiable. View the email exchanges.

If you are a PaperlinX investor, maybe the questions are of interest to you too as I allege, and substantiate, serious issues.  If so, read on at Orr is Awesome.

How PXUPA saved & saves PPX

Screwing hybrid holders is all that now keeps PaperlinX afloat.

It is shown below that PXUPA hybrid debt is fast approaching 50% of the “real equity” of PaperlinX.

That’s why the hybrid price has plummeted, as PXUPA now trades like equity and not debt, see 5 year chart of PPX vs PXUPA direct from the ASX

Here is a chronology of PaperlinX’s capital raisings, in $ millions; excluding DRPs and employee share schemes, since 2007.

Table 1
Date	Investor Source & Form	Raised
Mar 07	PXUPA Step-up Prefs Issued	$285
Jun 09 ^	PXUPA distribution not paid	$12
Dec 09 ^	PXUPA distribution not paid	$12
Dec 11 ^	PXUPA distribution not paid	$12	$321
Oct 08 ^^	PPX entitlement share issue	$185	$185
			$506

Notes:

^ By not paying distributions on PXUPA, PaperlinX is artificially inflating the equity attributable to ordinary shareholders (PPX) because there is no actual or accrued expense. The expense simply disappears.


$12M is derived from averaging the seven distributions made by PaperlinX for June 07-June 11 inclusive. The average was 8.5381% or $24,333,585 pa.

If anyone believes that lapsed distributions don’t constitute effective “hybrid equity”, please tell me why at paperlinXsuX@gmail.com.

^^ This raising was far from successful. The institutional offer sought $200M but managed only $150M. The retail offer to shareholders would have raised $100M, if fully subscribed, but managed only $35M.

As at 30 June 2011, the equity of PaperlinX was reported at Inequity for PXUPA as:

                                                                  

Table 2 - Total equity 2007 vs 2011	June 2011		June 2007
Equity attrib to ordinary shares (PPX)	459.9	62.5%	1,628.7	85.5%
PaperlinX SPS (PXUPA)	276.5	37.5%	276.4	14.5%
	736.4		1,905.1

As PaperlinX’s losses mount, the importance of hybrid equity increases. We say the importance is generally being misunderstood by everyone except PaperlinX’s bankers.

Using conventional accounting, PaperlinX shareholders have suffered a substantial loss. However  conventional accounting ignores the increasing equity load being carried by hybrid debt and its lapsed and stopped distributions.

Discarding accounting conventions and just looking at where the cash went*, the equity of PaperlinX should be considered like this at June 30, 2011:

Table 3 - Real equity of PaperlinX - PPX+PXUPA @  2011
Equity attributable to ordinary shares - PPX	427.4	58.0%
Equity attributable to hybrid debt - PXUPA^^^	309.0	42.0%
	736.4

* PaperlinX accounts for hybrid equity at $276.5M as at June 30, 2011 however when it pays distributions it pays on $285M. Here we use real figures reflecting real cash.

^^^ $285+12+12 = $309, refer Table 1 above.

Table 4 - Historical total equity of PaperlinX - PPX+PXUPA with 2012 forecast
Fin Year	2007	2008	2009	2010	2011	2012
Total Equity	1,905	1,925	1,271	924	736	666 est.
Change		+20	-654	-347	-188	-70 est.

Continuing the same theme, and if PaperlinX:

·         Has a further, and historically reasonable, reduction of total equity to say $666M by FY12, as above, and

·         Doesn’t pay the Dec 2011 & Jun 2012 distributions, as confirmed in the Chairman’s address at the AGM in October 2011

then the real equity of PaperlinX will look like this at June 30, 2012:

Table 5 - Forecast total equity of PaperlinX 2012	06/11	Changes	06/12
Equity attributable to ordinary shares (PPX)	427.4	-94.4	333.0	50%
Equity  attributable PXUPA	309.0	+24.0	333.0	50%
	736.4	-6.4	666.0

The Capital Structure of PaperlinX is a Mess

The Entitlement Offer in October 2008 hoped to raise $300M but managed only $185M.

It is arguable that PaperlinX would have survived its 2009/10 lenders’ waivers and then refinancing, which spanned 15 months, but for the hybrid equity of $309M then in place.

Clearly the Board is now of the opinion that it needs an additional “free” capital of $24M to survive 2011/12.

In recent times it’s become popular for hybrid debt to be considered a burden, whereas it’s been the saviour of PaperlinX and continues to be so.

We are now approaching the ludicrous situation where hybrid debt constitutes about 50% of the “real” equity in PaperlinX and is being treated like a pariah.

That’s why PaperlinX is reviewing its capital structure; and why PXUPA is trading at $18, and not around $60 where it was before PaperlinX’s Black Friday.

EMAIL paperlinxsux@gmail.com   SKYPE graham.critchley   TWITTER @PaperlinXsuX

                                                                 TEL 61 (0) 3 9055 5969

Dismal Facts of PaperlinX

Some people accuse me of being too negative about the prospects of PaperlinX. I consider my views are a rational assessment of the dismal facts.
Check for yourself at http://www.paperlinx-sux.com/p/dismal-facts.html

Whistle-blowers

Check out http://www.paperlinx-sux.com/p/whistle-blowers-here.html

Hubris, Hope ... Humilation

Twitter: @PaperlinCsuX

PaperlinX: Another sad story of hope triumphing over reality by too many for too long

Melbourne, Friday 23 December

There I was preparing another document for a new assault on PaperlinX Directors in early January, when low and behold the first Value Vulture shows its hand.

This chronology takes you from hubris to hope, then humiliation in five years.

Check it out here

More Hybrid Holders Screwed

Now Elders is up to hybrid trickery too, probably encouraged by PaperlinX’s recent success in screwing its hybrid holders.

Twitter: @PaperlinXsuX

At its AGM today, 20 December, Elders advised it had “resolved to not pay a distribution to Hybrid Holders”. First we had the cavalier CMI, and then PaperlinX made it the duplicitous duo now we have the tricky trio of hybrid issuers.

Concurrently Treasurer Swan wants to develop the Australian corporate debt market. Fat chance of this happening with cowboys in control of issuers like CMI, PaperlinX and Elders. 

What many people forget is that PaperlinX and Elders were both ASX100 stocks when PXUPA and ELDPA were issued.

Seems that for CMI, PPX and now ELD, the term "fixed income" means fixing things to suit hybrid issuers, as in racecourse parlance - "fixing" a horse race. Where are the stewards?

The investment implication of “fixed income” is that there is a high degree of certainty, not subject to change or fluctuation.

In terms of asset allocation, it's now time that non-bank hybrids are moved from FIXED INCOME to EQUITIES by the ASX, because distributions are becoming as optional to some Boards as dividends on ordinary shares.

CMI has a clear directors’ agenda with CMIPC; but PaperlinX, and now Elders, are engaged in corporate bastardry in their dealings with PXUPA and ELDPA holders respectively.

It’s time for a hybrid holders’ revolt.