04/06/2008 - 22:00

Happy with medium-term risk

04/06/2008 - 22:00


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Perth-based Amcom Telecommunications Ltd is among the most successful company recapitalisations in the local market, and one that spawned an industry.

Happy with medium-term risk

Perth-based Amcom Telecommunications Ltd is among the most successful company recapitalisations in the local market, and one that spawned an industry.

Insolvency practitioner Bryan Hughes credits the success of Amcom with having kick-started a practice that is now commonplace, with its own world of specialist service providers.

Mr Hughes recalls getting together with Tony Grist to come up the idea of injecting new life into what was then failed minerals hopeful International Mineral Resources Ltd.

"Back then voluntary administration was new and no-one knew what you could do," Mr Hughes said.

The deal was summarised in a one-page contract, a fact that Mr Hughes laughs at, given these days 100 to 150 pages are standard for such an agreement.

"There was a lot of trust at that point," he said.

Mr Grist, who still chairs Amcom, has since gone on to many such recapitalisations under the banner of Albion Capital Partners.

He said the original restructuring deal, which actually involved the listed IMR to be renamed Fibretel Ltd and then invested in the private company Amcom, was timed to take advantage of the technology company boom which was near its peak.

"If you wanted to capture institutional investors while they had the sentiment it was better to use and existing listing," Mr Grist said.

From the Amcom experience, Mr Grist and his partners have developed the Albion model to fill the void in venture capital in WA, where pre-IPO seed money is hard to come by.

"These vehicles become venture capital vehicles for clients of brokers that don't mind risk but want liquidity," he said.

"I see these as legitimate listed investment vehicles, as long as the money is captured into a reasonable business model and good management."

Recapitalisations of listed shells are not always the pathway, with Albion doing about two a year.

But they do offer a fast market entry if the assets have a flavour that the market has a taste for at that time.

Mr Grist said that, while this style of investment was aimed at investors who were happy with risk and had a medium-term outlook, there was no doubt that the track record of early gains was there for companies that returned to the boards.

"For the early stage investors they have been quite lucrative," he said.

Amcom may be one of the longest running of the current era of recapitalisations, but is not the standard bearer for success.

In that respect, Allied Mining and Processing Ltd's emergence as Fortescue Metals Group Ltd is seen as the sector's greatest achievement. Ironically, the arrival of FMG did not involve a company that had failed entirely, and as a result none of the normal recapitalistion players was obviously present.

However, the process was relatively similar, with original shareholders agreeing to a deal that diluted their holdings to around 35 per cent of the company.

In the long run the deal would have been an amazing win for stockholders. Shares that were trading below 10 cents each are now around $100, before share splits are taken account of.

A more straight forward version is that of Valiant Consolidated Ltd, which became Consolidated Minerals Ltd, one of the most recent share market successes until its privatisation early this year.

Valiant was subject to a deed of company arrangement in 1998 under the administration of Norgard Clohessy partners and went through what are usual routines of share consolidations - such as shares with a par value of 20 cents being reduced to two cents each.

Ukrainian-based mining investment company Palmary Enterprises Ltd took over the company last year with a bid of $5 per share.


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