November 11, 2011 / 10:09 AM / in 7 years

MF Global Asia sale hampered by problems unwinding trades

SINGAPORE/SYDNEY (Reuters) - MF Global’s MFGLQ.PK liquidators are struggling to sell the Asian business as one concern because of problems unwinding trading positions, so they may now sell the various country units separately.

The provisional liquidators for the business in Hong Kong said on Friday there had been a number of encouraging bids for the regional business as a whole but the exercise has proved increasingly complex and the focus is now on selling off the various Asian business units individually.

“The complexities and challenges arising from the Chapter 11 filing in New York, as clients and exchanges have sought to unwind and minimize client exposures, have meant that the bidders were not able to reach the point where terms could be agreed in the time available,” said Patrick Cowley, a principal at KPMG in Hong Kong.

The move marks a setback for the liquidators, who last week said there were more than 50 interested parties for the Asia-Pacific business of the collapsed U.S. brokerage, meaning they were confident they could sell the franchise as a whole.

In Australia, the administrators said earlier on Friday they hoped the sale of the business there would be completed by the end of next week.

“The data room for the local business is open, confidentiality agreements have been signed by a number of parties. We are hoping to get indicative bids in by Wednesday and close it out by next Friday,” said Chris Campbell, a partner at administrator Deloitte.

Liquidators in Hong Kong and Singapore are also working to try and sell their individual units.


The brokerage’s clients were told by the administrator of the Australian unit that they will have to wait a while longer before they can have their money returned.

A chorus of commodity traders around the world has been calling for administrators of MF Global to release billions of dollars in cash frozen after the broker filed for bankruptcy late last month following disastrous bets on euro zone debt.

Deloitte’s Campbell estimated they have nearly half the total funds owed to the Australian business’s clients in cash, with most of the remainder tied up with counterparties.

Counterparties owed MF Global Australia A$167 million ($168.7 million), or just over half the A$313 million of client funds, he said.

Campbell told reporters after a meeting of more than 500 MFGA creditors in Sydney he was expecting about A$33 million ($33.3 million) from BNY Mellon (BK.N) next week, but the lack of responses from other counterparties had “handcuffed” him from releasing any funds to clients or creditors.

Among the largest counterparties was Deutsche Bank (DBKGn.DE), which held around A$48 million as a prime broker for MFGA, he added.

The process would take more than three months but less than a year assuming all data was received and reconciled, he added.

Problems calculating client exposures also appeared to be continuing in Hong Kong. On Thursday, financial regulator the Securities and Futures Commission said it was extending the deadline for the brokerage to close out all of its outstanding positions in the city to November 18.

“This is an unfortunate set of circumstances, especially where, as far as I have seen, prior to the Chapter 11 filing, the Asian businesses were well capitalized, solvent and well managed,” said KPMG’s Cowley in Hong Kong.

About $600 million held by the U.S. parent remains unaccounted for.

On Thursday, U.S. futures regulator Commodity Futures Trading Commission launched a formal investigation into MF Global, increasing pressure on the brokerage as the search for the missing funds continued.


Earlier this week, Australian clients were assured by Deloitte’s Campbell that “virtually all” risk had been removed from their positions.

Ahead of the meeting at a Sydney hotel, some worried clients were bracing for “an explosive meet.”

“Among other things, I seek clarity about my money,” Brenc Roozendaal said before entering the creditors’ meeting.

“It has been lying dormant for the past month or so. So closing positions is irrelevant to me for I did not have any open positions.”

MFGA clients with exposure to Australian agricultural futures have switched to other risk management firms such as U.S.-owned INTL FCStone Australia, allowing trading volumes to recover on the ASX’s new 24-hour trading platform launched a week before MF Global collapsed.

By Thursday, 41,000 agricultural contracts covering grains, canola and wool had traded so far this month, higher than normal and reflecting the re-establishment of positions, according to the ASX.

The ASX also launched a tender process, offering futures contracts at fixed prices on Thursday, to help market participants to re-establish positions and boost liquidity.

($1 = 0.990 Australian Dollars)

Additional reporting by Narayanan Somasundaram in SYDNEY; Writing by Lincoln Feast; Editing by Muralikumar Anantharaman

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