Wednesday, 18 March 2009

IBA Health Rights Issue

I must be a bit thick when it comes to understanding how rights issues work as this particular one seems to be a circular process. Let me explain. IBA Health which is 35% owned Allco Equity Partners (AEP) also owes them A$60mln, and in the middle of AEP collapsing (don't take my word for it read the Oz business press or this bloomberg posting http://www.bloomberg.com/apps/news?pid=20601081&sid=auY_Y0jUi7F4&refer=australia) IBA asks current share holders, which presumably includes AEP, to fess up with cash to pay for the rights issue.
On top of this there are bad stories emerging from the UK where it looks the new NHS IT management are about to reconsinder the decision to use Lorenzo, IBA Health's flag ship new product which several years behind schedule and massively over budget.
Question 1. If IBA Health's biggest customer, UK NHS, pulls the plug on Lorenzo what happens to IBA Health earnings and this rights issue?
Question 2. If AEP does not buy into the rights issue who will?
Question 3. Who gets the A$60 mln or part thereof that IBA are going to pay back after the rights issue.? Is it AEP or the administrator?
Question 4. If AEP is collapsing it ought not be able to buy into the rights issue. But you never know with banking and finance laws or rulings, these days they seem to defy common sense. Perhaps they can buy into the issue in which case AEP has a new asset to help defray losses.
Question 5. It looks to me like the collapse of AEP and this rights issue will cause a major change in IBA Health's ownership with perhaps one or two companies holding majority stakes. What does this do for the customers, partners, and minority shareholders?

As all this looks decidely odd. But you never know it might all be business as usual. Can anyone out there in financial analyst land enlighten me?
Am I worrying about nothing?

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