Beer and Ice don't mix Wednesday, October 08, 2008
Icelandic banks are urgently liquidating positions and calling in loans in an effort to prop up their country's financial position. Consequently, some of their best customers have suddenly found themselves with demands for immediate repayment of loans.
Robert Tchenguiz, via his investment vehicle R20, has been a big borrower from Iceland’s Kaupthing with whom he financed the conversion of his CFD position in M&B into a holding in underlying shares back in April - a move he took to prevent the banks with whom he held his long CFD position from lending the shares out. He evidently felt these loans assisted short sellers to undermine the share price of M&B and hence removed his 25% holding in M&B from stock available to be borrowed. Regardless of this, the stock has fallen 74% this year following a disasterous hedging exercise on the part of M&B, as well as generally bad conditions in the pub trade.
Evidently, Kaupthing decided to call this loan and thus forced Tchenguiz to sell his stake last night, which was sold at 130p versus the closing price of 163p. It is believed that Joe Lewis, the Bahama based billionaire who lost £500m on the Bear Stearns collapse, was the buyer.
Oh to have a transcript of the conversation between R20 and at Kaupthing Bank when the loan was called. It may have gone something like
R20 - You can't do this to us. This is a long term loan to finance a strategic investment
KB - Yes we can and we need the money immediately
R20 - We need a few days to get alternate financing
KB - Sorry, we don't have a few days. We need the cash now.
R20 - We don't have the money
KB - No problem, we'll sell the shares we are holding as collateral
R20 - B**tards. We will never work with you again
KB - Don't think we're going to be around to worry about that
I suspect that this raises a few issues for R20, namely
- that they were unable to find alternate funding sources will worry people dealing with them and may prompt further cash recalls from other lenders keen to liquidate in case the "party" ends
- they will be forced to relinquish their 2 board positions in M&B
- they may be forced to liquidate other positions in other companies such as Sainsbury's and amongst their property portfolio
- At 9:58 PM, said...
Just discovered your blog. Good stuff - it's rare that I find a good UK based blog covering finance and the current fun and games.
So I guess the collapse of non-finance companies due to withdrawal of funding is the next stage of the game then? When are where is the Government going to (be forced to) step into that pile?