Allco Finance Group and its principals are negotiating a standstill agreement with several lenders to key executives, including the firm's executive chair David Coe, after a couple of those lenders sold all the Allco shares they held as security over a margin loan.
Two of those lenders sold more than 22 million shares in AFG in early trading yesterday. About 30 million shares, or eight per cent of the company's capital, changed hands on the Australian Securities Exchange yesterday. The company's share price fell 26 per cent to $2.21 and is now more than 80 per cent less than its 52 week high of more than $13.
In a reminder of the complicated ties between Allco's senior staff and the company and its affiliates, Christopher West, the co-head of corporate finance at Allco Finance Group signed the letter from Allco Principal Investments Trust that AFG released to the ASX late yesterday.
West advised that two margin lenders with security over 22.1 million AFG shares and security over 22.6 million Allco HIT shares "exercised their power of sale over all AFG shares" yesterday.
West said the two margin lenders held no other security. And presumably Coe and any of his colleagues were in no position to supply additional collateral in time to meet the margin call of the two lenders by first thing yesterday morning.
West wrote that Allco was in "constructive discussions" with the remaining two margin lenders in relation to a standstill agreement "to ensure that, given the current market volatility, no further stock is sold".
According to West "the sale is not reflective of AFG's business, performance, and prospects but is reflective of the fact that APT [that is, the principal's trust] is a closed-end investment fund and is constrained from accessing further capital at short notice."
David Clarke, chief executive of Allco, in interviews with
The Australian and
The Sydney Morning Herald emphasised a similar message.
"It is very important to recognise that the issue relating to our shareholders is not affecting our underlying business."
"We might reach a heads of agreement on a standstill agreement by the weekend but it certainly won't be documented in that time," Clarke said.
Allco is scheduled to release its December 2007 half-year profit on February 15.