Tuesday, August 16, 2011


In the face of extreme provocation from the media, I've refrained from venting my opinions on the astonishing implosion of western civilisation as it's unfolded, over the past month, in the USA, Europe and the UK. There's no shortage of people closer to the action who are doing quite enough commentating for all of us.

But just so's you know it's not just you...

Last Wedneday was the bondholders' meeting, at our local racecourse, for those who'd lent money to Blue Star Print Group.

(A brief diversion here: Auckland has several racecourses. Where I used to work, in Epsom, was just down the road from a racecourse. Where I now live, in Ellerslie, is just round the corner from a racecourse. Gambling is big. Sadly we don't have British-style betting shops; even more sadly, we do have the tallest freestanding building in the southern hemisphere, and it belongs to a casino.)

And since it was just round the corner, I thought I'd go along and cast our vote in person.

My first impression was - familiarity. As a magazine editor in the 1990s, I attended scores of press conferences by well-heeled consultancy firms, and those events looked very much like this. I saw a phalanx of spotless business suits. The occupants, none aged over 35, clustered in groups based on what was clearly, among themselves, a well established pecking order. With my years of journalistic training, it was the work of moments to elbow my way through the crowd to the coffee dispenser.

This crowd, however, was not what I expected to see. There had been much talk of "mum and dad investors", and my mental image had anticipated that the suits, and the bodies inside them, would be rather more worn. Clearly, these were accountants - either here as representatives of the auditors or the consultants, or simply drawn to the smell of blood in the water.

Ah, there they were - beyond this antechamber in the main conference room. A scattering of middle-aged, middle-class people, all smartly dressed. I took a moment to wonder why they troubled to dress up in order to be robbed. Must be a colonial thing. I sat down next to a red-faced gentleman in his 50s, who looked fit for a bit of barracking, and waited for the entertainment. After all, I was paying for it.

Proceedings kicked off with an opening statement from the referee - sorry, chairman - who invited some preliminary questions from the floor. Of these, the only controversial one was "will you tell us how many proxy votes you're holding?", which he twice refused to do. Looking back, we should have pressed him on that. He was, he explained, on solid legal ground - but when you're asking people to trust you, surely it's no time to hide behind legalities. He added that he didn't want to prejudice our votes, then went on to introduce a series of presentations plainly designed for no other purpose.

The presentations were slick and, up to a point, persuasive. They pointed to a glowing future for the company, if we would just help them over this little temporary difficulty. But what struck me was that they didn't really seem to be aimed at us. We, the bondholders, still wouldn't get our money back even if this rosy future came to pass. There was a clause specifying, in so many words, that even if the company was sold for its weight in uncut diamonds we still wouldn't get more than about half our money back: the shareholders would keep it.

A few people explored this clause in their questions, but it didn't get much attention, because everything we heard was designed to massage our expectations into a very narrow range - the range in which we would get about half our money back. The chairman said that he'd opposed the clause, but negotiations had been bitter and bloody and in it stayed. (So why would the shareholders fight for a clause that would not be triggered under any plausible scenario? - is just one of the questions that didn't occur to me until some time later.)

For the most part, questions and answers were predictable. Would management and board be taking pay cuts? (No.) Is this really your best offer? (Yes.) Will the banks really call in the receivers if we turn you down? (Yes.) There was a surprising lack of passion, but I was cheered by much talk - and applause - for "voting on principle". Surely, I thought, they can't muster 75% agreement from this crowd unless the proposition includes lynching the shareholders. (It didn't.)

After a couple of hours of this, the crowd dispersed more or less peacefully, and I went home to await the announcement of receivership.

Instead, about 2.30 in the afternoon, I saw the news that the offer had been approved.

I was stunned. I would suspect dirty work in the counting, but that was the job of those nice accountants, and surely if they were going to jeopardise their good name for a quick buck, they'd take it from someone who was more solvent than this? Surely...

Still, the message went out from that meeting loud and clear to the New Zealand exchange: "We small-time bondholders know our place, and will gratefully accept whatever crumbs our betters deign to throw us. There may be such a thing as an offer that is too unfair or treats us with too much contempt, but you haven't managed it yet. Try harder next time."

So there you go. If ever you're tempted to lend money to a New Zealand company, don't. You might as well take it to the races.


Michelle said...

Exactly. I am, today, meeting to pull my "loans" - which is how I've come to think of my investment in the U.S. Stock Exchange...out (in incremental lots). I'm done riding their roller coaster.

All they do is let me pay for a ticket at their amusement park and I get an upset stomach for it with not even a fun prize at the end. To say it's a racket is the understatement of the century.

I am only investing in myself from here on out.

vet said...

Michelle, I actually wish I had invested in stocks at this stage. Yes it's a rollercoaster, but at least I'd have known that going in. Bonds are supposed to be a safer investment - lower risk, lower return.

Turns out that's not how it works. Lower return sure, but the risks are, if anything, higher.

No wonder our companies have to look overseas to raise capital, when this is how they treat their local investors.

(Bitter? Moi?)

Good luck with your investments, wherever you choose to make them. Trouble is, you gotta do something with the money. At this point, I suspect the safest investment may be to give all my spare income to charity to buy some good karma, 'cuz I'm going to need it.

Anonymous said...

I don't hold individual bond investments, but I do have small holdings in several bond funds. They, unlike most other investments, have proved immune to the carnage of the last few weeks.

Conclusion: bonds as a class are indeed lower-risk, although individual bonds may still bite you.

(My other class of investment that shows no sign of crashing is venture capital funds - which are tied to the fortunes of businesses too small to list on the stock market. But that may be just a matter of being out of sync with more liquid markets).