Lender pressure has Billabong facing a wave of uncertainty Billabong International's $225 million share issue screams "rescue raising" on so many levels.

Lender pressure has Billabong facing a wave of uncertainty

Billabong International's $225 million share issue screams "rescue raising" on so many levels.

The new chief executive, Launa Inman's, big challenge is clearly not so much learning about surfing, but how to avoid being swamped by the group's bankers. There is no doubt Inman has the business smarts to adapt from her discount days at Target to the Billabong environment.

The question is whether the company's lenders will give her the time to turn it around.

How else can you characterise an issue that will near double Billabong's issued capital that is pitched at nearly half of its previous market price, and that will be "non-renounceable" - meaning existing shareholders cannot even sell their rights to participate if they have not got the cash to take up their full entitlements?

A week ago Insider was surprised that the Packer-besieged Echo Entertainment priced its strategically clever $454 million issue at a 26 per cent discount to market - and so far as we know, it is not suffering the same market pressures or straining to meet banking covenants.

Another clue to Billabong's lender pressure is that the issue's underwriters, Goldman Sachs and Deutsche Bank, are pulling a fee of 2.9 per cent on the work, compared with the more normal 2.5 per cent on such issues.

In the previously mentioned Echo deal, for example, Macquarie was getting 2 per cent on the underwriting component and another 0.5 per cent for managing it.

It might not sound like much of a difference, but that signals a recognition of additional risk - most likely in the form of having to find homes for a significant retail shortfall.

We will know even sooner, possibly today but probably Monday, what the shortfall is from the institutional entitlement offer, because, as is usual these days, it is being done under an "accelerated" basis. When Billabong announced in February that it was selling half of a hitherto unappreciated plum, Nixon Inc, for some quick cash generation, the company said that deal "addressed Billabong's capital structure issues".

Last December Insider was taken to task for suggesting that Billabong's strategic capital review was really just code for "sacrificing shareholders to keep the banks happy", and would result in a heavy share issue. The Nixon deal was then waved as proof of Insider's errors.

(At the same time, Insider also suggested that then CEO Derek O'Neill and chairman Ted Kunkel's tenures were hanging by a thread. Both threads have now snapped. Inman replaced O'Neill over a month ago, and Kunkel is planning to hang on for one more annual meeting later this year before baling. He may not last that long if Billabong's fortunes do not improve soon.)

Four months on, and in spite of store closures, a change of management and some other swinging of the cost-cutting knife, harsh reality has been that trading conditions in most of the beach and 'burbs fashion group's markets are still awful.

To Insider's mind, the final clue about the banks' concerns on Billabong is that it will repay all of Tranche A of its syndicated facility, drawn to $143 million, from the issue's proceeds - a full 12 months ahead of the loan's due date.

There may be no more repayments due until 2014, but that says the banks want a big slice of cash back now, and shareholders are going to pay for it - with a certainty of no dividends on old or new shares for at least 12 months.


ANZ Bank's online broking business E*Trade Australia, has been slapped with a $100,000 fine over orders it placed on behalf of shareholders in 3D Oil more than three years ago.

E*Trade was staring down a worse result than that from the initial determination of the ASX Disciplinary Tribunal which assessed it as a level 3 (very serious) breach. On appeal, the broker managed to have that cut back to level 2.

The broker told Insider that, rightly, this was a long time ago (April 2009) "and we've taken the investigation seriously and have co-operated fully with the ASX throughout its investigation".

"We recognise that we are ultimately responsible to the market when our clients breach the Market Integrity Rules, and we respect the tribunal's findings. We recognised that some of our internal procedures needed to be improved, and we took those steps following the incident," it said in an emailed statement.

The ASX statement yesterday coyly referred to shares in "Company A" and "Company B", but Insider's investigations have confirmed that the share trading occurred against the background of a share swap offer launched by Drillsearch Energy for 3D Oil in January 2009.

Two of the target company's largest holders, with a combined 1.4 per cent of 3D Oil, placed electronic buy orders through E*Trade's system to purchase stock at above market prices. ASX has firm rules for bids and offers being placed that are a long way out of kilter with recent trading, largely to avoid manipulation of stocks.

While the first orders in early March apparently triggered E*Trade's own software alert systems, and the broker's compliance department had a trader contact the clients and warn them about such behaviour - the broker also rang the ASX to say it had "detected possible ramping" of 3D Oil's shares.

Four weeks later the same clients, all members of one Melbourne family, tried again - resulting in E*Trade closing their accounts, but not before the ASX wallopers decided there was a case to answer.

Insider last night spoke with Joe Demaria, whose family were the clients. Demaria said that he had been unaware at the time of placing the orders that were such rules, and that surely it was E*Trade's responsibility to have a system that prevented traders such as himself from being able to break them. A fair point.

Fascinatingly, Insider's call was the first time Demaria had heard anything about his trading in 3D Oil, he said, since shortly after the actual trading when he was rung by the Australian Securities and Investment Commission a couple of times.

If that is right, it would suggest ASIC has found no reason to pursue the Demarias, which means that E*Trade is the only entity to be punished in the whole matter - even though it self-reported the event and attempted to dissuade its clients from behaving inappropriately.

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