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Thread: The risk of buying forward.

  1. #1
    Site Caretaker Dave A's Avatar
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    The risk of buying forward.

    There are a whole lot of BEE deals that just have to be under water as a result of the GFM. To some extent it always was a bit like playing the futures game - buying and selling short.

    There isn't much noise when people make a fortune out of these deals. But when they're on the losing end...

    Locally it really wouldn't surprise me if Julius Malema's call to nationalise mines really is motivated by an attempt to bail out some buddies who have been caught short. COSATU's call for lower interest rates, a weaker Rand and higher inflation could quite possibly share the same underlying motive - a desperate attempt to drive up share prices and lower lending costs so that those deals might actually be viable again.

    Of course touting such realities as reasons might be seen as somewhat self-serving. Historical rights issues and dealing with unemployment make for far more palatable motives.

    In similar fashion, the Abu Dhabi Investment Authority (ADIA) looks to have been caught short on their forward deal with Citibank.
    The agreement obligates "ADIA to purchase a total of $7,5-billion of common equity on specified dates in 2010 and 2011," Citigroup said.

    The acquisitions were stipulated in an accord that saw purchase by the fund of $7,5-billion of securities to be converted into shares with an 11% annual return.

    But the share price of what was then the largest bank in the world has fallen from about $30 at the time of the deal to a closing price on the New York Stock Exchange of $3,57 on Tuesday.

    The deal still obligates ADIA to pay the equivalent of between $31,83 and $37,24 per share.
    full story from M&G here
    Understandably the ADIA is trying to find a way to wriggle out of the mess they're in. Unfortunately not everyone has the luxury of calling on politcians to roll out some populist rhetoric to save their bums.

    Somehow I don't think they'd be squealing as much if those shares were now worth $50 each
    Last edited by Dave A; 17-Dec-09 at 02:46 PM.
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