No joy for RAMS shareholders

For those that think we are not in a full-on credit crunch yet. Here we have a company with absolutely no exposure to the US sub-prime market but that just cannot fund their normal business operations.

Could the IPO have been at a more inopportune moment? The company floated at $2.50 on July 27th - barely 3 weeks ago and has now lost over 65% of it's value, closing today at $0.865.

I'm sure there will plenty of pissed off shareholders and if this thing ends up in liquidation there is bound to be an inquiry by ASIC.

From Bloomberg:

Rams Home Loans Fails to Refinance $5 Billion of Debt

By Laura Cochrane
Aug. 16 (Bloomberg) -- Australia's Rams Home Loans Group Ltd. failed to refinance A$6.17 billion ($5 billion) of short- term U.S. loans, forcing the lender to seek emergency funding.

Rams slumped 36 percent, or 48.5 cents, to close at 87 cents on the Australian Stock Exchange. The Sydney-based company has lost two-thirds of its market value this week and is down from the A$2.50 paid by investors in an initial public offering arranged by UBS AG before the company listed on July 27.

The lender's inability to obtain financing helped fuel the biggest decline in Asian shares in a year as investors fled high-risk assets. The deepening crisis in credit markets threatens to ensnare more mortgage lenders. Countrywide Financial Corp., the biggest U.S. home-loan issuer, dropped 13 percent after Merrill Lynch & Co. said it may fail.

``Lenders globally who rely on commercial paper for funding will be hurt as the liquidity taps are turned off,'' said Craig Saalmann, credit strategist at JPMorgan Chase & Co. in Sydney.

The longer it takes Rams to refinance, the more it will cost the company. The yield on Rams' short-term debt has jumped to 25 basis points more than the London interbank offered rate, or Libor, it said. The debt yielded less than Libor about two weeks ago. A basis point is 0.01 of a percentage point.

Julie Webster, a spokeswoman for Rams in Sydney, didn't return a call seeking comment. Nigel Kassulke, a Rams spokesman at Cannings Corporate Communications wasn't able to give additional details.

Rams has 80 branches in New South Wales, Victoria, Queensland and Western Australia states. The company started in 1991 as a wholesale finance provider for lenders and expanded its network serving individuals in 1995.

`No Deposit? No Worries!'

The company, which touts loans for as much as 100 percent of the purchase price of a home under the slogan ``No deposit? No worries!'' started trading its shares the same day that the risk of owning corporate bonds soared to the highest on record in the U.S. and Europe. Rams forecast a 35 percent gain in 2008 net income to A$58.6 million during its IPO.

Rams, which relies on U.S. commercial paper for more than 40 percent of its funding, got temporary financing of A$1 billion from two of its providers, it said in the statement, without identifying them.

National Australia Bank Ltd. and ABN Amro Holding NV are each creditors for about half of the A$6.17 billion in short- term debt that Rams failed to refinance, according to Elizabeth Steenson, a Standard & Poor's analyst in Melbourne. They may seize assets if Rams does not refinance the debt within 180 days, she said.

Auction Collapsed

Felicity Glennie-Holmes, spokeswoman for National Australia, the nation's biggest bank, declined to comment. Jason Conabere, a spokesman for the Dutch lender in Sydney, did not return telephone calls seeking comment.

Founder John Kinghorn took Rams public this year, raising A$695 million after an auction for the lender collapsed, leaving Kohlberg Kravis Roberts & Co. the only bidder, people with knowledge of the matter said in June. Kinghorn retains a 20 percent stake.

Nikko Principal Investment Australia, a unit of Japan's third-largest brokerage, and Carlyle Group were among firms that dropped offers for Rams as profit margins on lending narrowed, the people said at the time.

Rams has not made any direct investments in U.S. subprime mortgages and all its customers in Australia take out insurance on their home loans, Rams said in a statement Aug. 14. The company has A$14.2 billion of mortgages.

Its funding difficulties may exacerbate concerns about the higher borrowing costs for Australian homebuyers after housing affordability sunk to a record low.

The central bank last week lifted its benchmark rate a quarter point to an 11-year high of 6.5 percent.

Asian Stocks

Asian stocks had their biggest drop in a year today, extending a global rout after U.S. markets fell yesterday as Countrywide's problem heightened concerns about subprime losses.

Countrywide would be in ``effective insolvency'' if creditors force it to sell assets at depressed prices or investors lose confidence in its ability to raise cash, Kenneth Bruce, a Merrill analyst in San Francisco, said in a research note yesterday.

American Home Mortgage Investment Corp. and New Century Financial Corp. have already filed for bankruptcy.

Rams included a debt-market crisis among a list of potential risks in a June 27 document for prospective investors in its shares.