Things don’t look good for CBL CORP FPO NZX (ASX: CBL), with the company placed in administration over the weekend. CBL’s shares have been suspended since 6 February 2018, after entering a trading halt four days prior to that.
I wrote on the 5 February that the company had shocked shareholders by announcing it would take a $100 million hit to its future claims expenses, as well as writing off $44 million in receivables following its acquisition of broker SFS in 2017.
At the time I said that I thought the claims would cause CBL Insurance (CBL insurance is a subsidiary company owned by CBL Corp) to fall below its minimum required solvency capital. That would have required a capital raising, and reading between the lines of ASX announcements, it seems CBL tried to raise capital but failed.
Following this, CBL announced that it would sell its French construction business, its primary breadwinner. It’s not clear what happened between then and now, but CBL Corporation announced this morning that it had entered voluntary administration. Liquidators have been appointed to both entities.
CBL Corporation-controlled foreign companies are unaffected, including Assetinsure, DepositPower, and Europe-based PfP, SFS, and European Insurance Services (EIS).
There is not a lot of information provided so it is hard to know the ultimate outcome to the process. In any event it seems as though the major business, CBL Insurance, could be close to worthless. With the core business gutted, CBL’s shares are likely to be worth close to zero if the company ever returns to trade.
From my perspective as a shareholder, and one who wrote positively about the company less than a year ago, the unraveling of CBL has been quite a surprise. More so considering Peter Harris, managing director of CBL, was named Ernst & Young’s Entrepreneur of the Year in 2017. While the business is opaque, there are likely several lessons here, namely that perhaps I should have viewed CBL Insurance’s high margins as a warning sign rather than something attractive.
It also looks as though shareholders have been thrown under a bus, given that the Reserve Bank of New Zealand (RBNZ) has been talking with CBL since July 2017. Management are also likely to take considerable losses, given they still hold almost half of the company. The RBNZ discussions were under strict confidentiality orders, which is why they were not disclosed to the market.
We will have further coverage as CBL updates the market. I do not expect the process to have a quick outcome.
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Motley Fool contributor Sean O'Neill owns shares of CBL Limited. The Motley Fool Australia owns shares of CBL Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.