What I am seeing that potentially you don't is answered by point (for a start at least)
- Once JBFG contained a trading platform HML and BHD moved their trading to to it and with great fanfare advised that they would save about $1mill PA in reduced commissions. Now that we have exclusivity proposed/accepted in a deal with JBTH that owns the 3 trading parts of JBFG we have; in your words "at market rates (whatever they are)" I agree. What are they? Do we have the same $1mill saving. If not, then the 4.1% income ($607,500) is a loss of $400,000 PA for the privilege of providing them $13.5mill in liquidity.
- You are right. BHD will hold security over JBTH which holds 100% of the assets in JBM (JB Markets Pty Ltd, GENESIS (Genesis Proprietary Trading Pty ltd), HPH Holdings Pty Ltd and JB Alpha Proprietary limited (via HPH Holdings Pty Ltd) (JB Alpha) The value and operations/performance of these companies for the last fiscal supposedly will be incorporated in the independent experts report.
JBTH has only 1 director. It was incorporated May 1 2018 and its has a sole shareholder JB Financial which holds 10 $1.00 shares. The only information about the performance of these entities of JBTH so far is in the JB Financial Annual report for the financial year ended 30 June 2017, notes to the Consolidated Financial Statement for the Period ending 30 June 2017, Notes E2 and F5. This was incorporated into an ASX response on 23 February which you can view on HC.
My digestion of these 3 companies details from that report is that JBFG paid about $14.5mill to purchase the 3 unlisted companies. $200,423 for JBM, $3 mill for JB Alpha (50% cash and 50 % shares in JBFG) and $11.247mill for GENESIS of which 1.3 mill was assets and $9.9mill was for goodwill. The performance of GENESIS was not covered and the other 2 collectively had annual revenue of $1.8mill and for a collective annual loss of $550,000
So the $13.5mill convertible note is to provide both liquidity and presumably justify the purchase price. As others have noted in the BHD thread that there is doubt about the ability of JBTH to pay the 4.1% PA for the note. Time will tell, maybe the IER.
Unless GENISIS is/can provide large growing profits over 4 years, BHD in reality will 'own' JBTH from a financial perspective while a $10.00 company has the rights. IMO there will be no cash payment after 4 years and at the first sign of problems BHD may have to stump up actual money to keep it propped up.
- last part: The old rate answered to some extent in 1. above. The first query will be answered last.
- See the first Convertible Note Proposal on June 6 2018, last sentence of second last paragraph. "A notice of meeting and internal expert report (IER) was to be sent to shareholders of BHD for consideration."On page 3 of that announcement in a note attributed to JBTH, the last sentence ends with the "proposal to be considered by BHD shareholders for their approval at a general meeting of the company". The subsequent 2nd update only stated share holders would be kept informed. This final update - point 2 in the box, BHD management are now asking ASX if they need shareholder approval and anything else that may be required.
I find these changes disturbing. While we were told and expecting a vote, management are obviously not as confident of winning such a vote so are looking for rules to avoid one. ??
The second part of your point 4 is outlined in 2. above and point 5. below. IMO BHD will have the financial problem not JBTH.
- Yes you are right. Just as Trading with JBFG gave the economy of scale/size then JBTH will benefit for that same reason. Whether BHD will benefit is the question. The rates one is the first question. Will it survive is another? IMO JBTH will not list until it can financially provide its own liquidity and it appears that BHD may need to be an interim buyer at a 40% discount - after more questions of ASX/ASIC about related party transactions. I suspect even Stu doesn't know that at this point in time.
The main reason for the deal as has been stated by Stu and incorporated in the updates is that "the transaction provides JBTH liquidity" which is the answer to your Q3. "Where's the downside for BHD?"
I see a major downside to 2 related companies using the same assets to be the support required for their respective derivatives trading:-
An individual trader or in this case BHD has to show that it has sufficient liquid assets that it can handle a margin call in the case of a poor decision, error by an employee or computer trading system.
Similarly, the trading facilitator that takes commissions to handle the trading between the trader and the market must have suitable liquidity for the volume traded or they can also get into financial trouble.
The problem here is that JBTH should be the one checking that BHD has sufficient liquid assets for purpose. But no, they want BHD to provide them the liquidity for the trading level they want, and BHD wants to play this risky game. Stu sees no risk. My opinion is the opposite of course.
In the GFC 50% correction, many traders lost a lot of money or failed and in turn, a lot of small derivative facilitators failed because they had inadequate procedures or liquidity. The big guys had big problems also.
Another correction is expected soon. Has the part of JBTH that does the trading have the best controls possible to handle the problems of a sever correction? If it needs liquidity now to presumably satisfy the market, then it obviously has a problem now i.e. They want BHD want to prop it up. I find this scary.
Holding currency notes is OK apart from the poor return, as would holding some LIC shares or small chicken wing assets would be an acceptable risk but an incestuous relationship between a trader and the company that facilitates those trades compounds the risk especially if the market sours. If one fails it affects the other to become an endless spiral in the worst cases.
JBTH is being divorced from JBFG and BHD is being asked to prop it up. Meanwhile HML owns a substantial chunk of JBFG and is apparently propping it up. All of this is supposedly to build an international financial/trading business. JBL was going to take this on financially and spin off an IPO of JBFG to pay HML. The direction has turned a complete circle for HML to prop up JBFG and now BHD being asked to prop up the JBTH spin-off.
Nothing I see of this chaotic defensive management activity to build a dream for Stu leaves me comfortable that it will be a winner. If the banks are leaving this liquidity supply for such derivative facilitators - for poor returns or high risk - why are we interested? The fact that Stu could not get support from the original direction and IPO says it all. If he couldn't sell the idea to others, he is now trying to use BHD and HML to risk their assets to build the dream and all without a wholehearted consistent coherent promotional sales pitch. Where the IER was going to be part of the sales pitch for a vote, it is now to be avoided if ASX provides the ammunition. I will be voting No if a vote occurs.
At this time I see no risk of financial failure/collapse of BHD or HML. If these deals progress and JBTH or JBFG fail to gain ground or fail financially, substantial change to both NTA's and SP could be expected IMO. At the moment the market is treating BHD like a leper and the same is expected of HML when it re-lists. A failure of the dream would make that sentiment collapse further with only good trading performance to prop up the SP's.
This risk and rot is not what I signed up for and ASX and ASIC are concerned as well. Let's hope they have our interest at heart for IMO management is showing little concern for the risks I and the market can see.
I do wonder what would happen to all this if Stu was out of the equation ?
I will be happy for my opinions to be wrong if the dream is attained in a few years and it turns out to be immensely profitable and risk free - if I am still a holder.
Fortunately Stu has stated there are risks but failed to qualify what or who would be involved, so my opinions may have merit.
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