Opes Prime: Singes Singapore, collapsing charges and liable for litigation

Some recent updates on the Opes Prime saga:

Opes Prime collapse hits Singapore

The Opes Prime collapse has spread overseas causing a mini scandal in the Singapore markets. Merrill Lynch repossessed (hopefully under something better then its faulty Australian charge, see below) shares that were being used to take over a Singaporean company. The shares were subject to a Opes Prime infamous stock lending arrangement and on Merrill's repossession the takeover collapsed, as did the share price from 22c to 7c.

Merrill Lynch's invalid charge

Merrill Lynch, which has relied on a charge over Opes Prime assets (these include the shares purchased by the Opes clients as Opes ran what is called a 'stocklending' arrangement with its clients, see below), failed to register its charge in time (it needs to be done in 45 days of the charge being given) as well as not registering it until after Opes went into administration (and it is therefore voidable) and the charge is therefore ineffective.

I would certainly hate to be the junior in the finance team of what ever law firm Merrill Lynch uses. It is a $600 million fuck up. A career ending move (and scarily easy to do).

ANZ is lucky and does not need to rely on its charge (which was only registered the day before Opes's administration) for it to sell most of the Opes securities it already has, as ANZ had a stock lending arrangement with Opes itself (like what Opes had with its clients). ANZ does need it for its further 90 odd million loan it made to Opes just before it collapsed, but its charge will be effective for this loan anyway.

A stock lending arrangement involves:

1. A holder of shares (for example Opes) sells shares to another party (for example ANZ) for money (or something else like different shares);
2. ANZ has an obligation to sell equivalent shares back to Opes and Opes to pay the money back (less ANZ's margin);
3. While ANZ holds the shares it is the legal and beneficial owner of the shares and can deal with them as it likes including selling them and doesn't need to return them to Opes if Opes defaults (which it did here).

Opes had stocklending arrangements with most (but not all, these ones won the injunction against ANZ preventing them from selling their shares) of its clients, which is why Opes clients suddenly found ANZ and Merrill selling their shares even though they were not facing margin calls and were not in default themselves.

Opes creditors will pay for any litigation twice

Opes clients will be lucky to get the forecast 30c in the dollar, especially if they carry through with all the litigation against ANZ and Merrill that various class action supporters (those with vested interest in seeing a class action proceed) are pushing for.

ANZ, under its security, is entitled to all costs defending any actions related to the security (which the class actions will be) and the administration will need to continue while the litigation continues, increasing administration costs. These costs will quickly eat into the 30c in the dollar that the unsecured creditors have been promised.

Even if the unsecured creditors win, they won't necessarily get any more as ANZ will then enter the pool of unsecured creditors diluting their stake (and ANZ certainly will not lose on all points that the creditors will take against it).