Sub prime MIS

Few would have thought 12 months ago that granting mortgages to a few borrowers who couldn’t afford the repayments, would lead to such world wide turmoil. But it was more than just a few borrowers. It was a few million.

The mortgage providers bundled the mortgages together and transferred them to other lenders. They were then repackaged, given an attractive credit rating, then on sold to investors and super funds all round the world. The investors thought they were buying a highly rated bond with an interest rate better than bank deposits, when in fact they were buying a collection of mortgages to borrowers with a high possibility of default.

Default is what occurred. With a large level of defaults, a lot of houses hit the market at once. House prices plummeted. Invertors’ bonds became worthless. The only recourse for investors was to sue those who sold the toxic product. But firms like Lehman Brothers declared themselves bankrupt. In Victoria alone it is estimated that local governments and other semi government bodies have lost $30m in this way.

We are now witnessing the same phenomena in our MIS industry.

A tale of Temma

 

 

 

 

 

THIS IS a tale about Temma, a tale about how a small historic plot of land has been exploited by distant landowners motivated by the excesses which have characterised the last few years.

It is a tale of failed public policy.

The death of MIS

Are we seeing the beginning of a change in the managed investment scheme (MIS) industry?

The question of whether or not the pulp mill will proceed has accounted for most of the recent attention directed at Gunns and the rest of the forest industry. Gunns announced a trading halt as they endeavoor to boost their balance sheet with $430 million of additional equity. Their ASX announcements released on 29th August make interesting reading.

But even more interesting were the ASX announcements by Great Southern Limited (GSL) issued last week at the end of their self imposed trading halt. GSL is involved in the forest industry as an MIS manager and an exporter of plantation woodchips as well as administering non forestry MIS projects involving cattle, olives almonds etc. Hence GSL is similar to Gunns in many respects.

Gunns and the sale of assets

Discussion about the possible reasons for Gunns proposing to sell $170 million of their plantation assets has largely overlooked the fact that $120 million worth of hybrid securities called FORESTS (Frankable Optionally Redeemable Equity Settleable Transferable Securities) which trade on the ASX under the symbol GNSPA need to converted to shares or redeemed by 14 October 2008 or else Gunns may face an increased payment of 2.50% pa to the holders of the securities.

The biggest Ponzi ever

 

This weekend’s Oz contained an article by Bina Brown on MIS schemes in which she disclosed that Great Southern (GTP) in 2005 used some of their own funds to purchase all of the timber from their investors in their 1994 Project. The investors ended up with 3 times the amount they would have received had the contractual arrangements been strictly applied. A face saving exercise perhaps?

Farmers and MIS

I have been surprised by the shrill support for MIS schemes from sections of the farming lobby. There seems to be a widespread misconception that MIS schemes are the only way to attract funds into the farming sector.

Some discussion about whether a MIS structure is an efficient way of granting assistance to farming industries might be helpful.

Plantations: An accountant's view

I’ve never been a fan of MISs, initially because I’ve never seen any investor make a respectable return, but in the last few years because of the associated negative impact on our community. After considerable reflection I think the current proposed arrangements announced at budget time give us a chance to move on.