Blue Sky calls in receivers

Blue Sky calls in receivers

After a year of languishing results, director conflicts, class action speculation and a failed rescue deal with a US venture capital fund, Blue Sky Alternative Investments (ASX: BLA) has finally hit the wall.

Shares in the company have been suspended from the ASX today after Blue Sky announced it had appointed KordaMentha as its receiver and manager.

The Brisbane outfit's fate has been on a knife's edge recently after it failed to meet its loan conditions with US heavyweight Oaktree Capital, while its Blue Sky Alternative Access Fund (ASX: BAF) has essentially seceeded from the parent company.

In today's announcement, KordaMentha clarified the receivership did not extend to BAF or any subsidiary or related entity of the broader Blue Sky group.

The advisory firm's Mark Korda and Jarrod Villani will be undertaking the receivership process, while Bradley Hellen and Nigel Markey of Pilot Partners have also been appointed as voluntary administrators.

The move comes after Oaktree decided to enforce its rights under the convertible note facility entered into by Blue Sky, with KordaMentha noting its appointment is necessary if Blue Sky is to maintain its investment teams, key clients and stabilise the operations and capital structure of the business.

"Our objective during the first phase of the Receivership is to stabilise the business as a strategic assessment is undertaken," says Mark Korda.

"The appointment will not affect the dayto-day operating activities of Blue Sky and its investment management business subsidiaries. Existing management and key contacts for relevant stakeholders, employees and unitholders will continue to be in place as per normal.

"It will also allow greater flexibility for the restructure of Blue Sky and seek to ensure the future of the business as an alternative asset investment management platform."

The announcement comes just three days after the embattled group announced Justine Henwood as its new CFO, the third person to take on the role in seven months, while new CEO Joel Cann has only been in his position for just over two months. 

In 2017, Blue Sky was one of Brisbane's top 25 listed companies with a market capitalisation of more than $500 million, but in March last year the group's fortunes turned after a research report from Glaucus in the US raised suspicions about "wildly exaggerated" fee assets under management.

At the time BLA shares were trading around the $11.50 mark, but as the share price plunged the fallout led to two board purges and the resignations of managing director Robert Shand, and chairman John Kain along with other board members.

Anticipation around rescue packages led to a slight rebound in the share price last year, but it was short lived and the stock continued its steady decline. BLA shares last traded at $0.185 on Friday.

This final trading level is around 10 per cent of the $1.87 per share conversion condition under the deal with Oaktree, which gave Blue Sky a $50 million lifeline in September last year.

At a heated AGM in November, outgoing chairman John Kain was under fire for claiming a record of a 17.9 per cent annual return net of fees over the past five years for Blue Sky. He also stood by claims fee earnings assets under management (FEAUM) were around $4 billion in late March 2018.

"This year, our reputation has suffered clearly. We have taken the steps to rectify this and are confident that today marks the turning point, from which our reputation can begin to recover and we can focus on the future, rather than the past," Kain said at the meeting.

When asked whether the board should have seen the Glaucus attack coming earlier this year, Kain said the team had been monitoring short positions but never could have anticipated the  extent of the fallout.

"We anticipated that there would be some short activity around us. What we didn't anticipate was the type," he said.

"It was a bloody well organised and choreographed attack. We still don't know the full extent of everything that went on, maybe we should have, but it was almost unprecedented in Australia."

"Eventually it'll die down; we can keep our heads down long golly we'll lose some skin along the way but eventually we'll win out."

Kain also mentioned that when negotiations with Oaktree became public in July amidst a "feeding frenzy" around Blue Sky, the company was "extraordinarily vulnerable".

He said by the time negotiations got to the pointy end of the deal, Oaktree was probably in a position where it could have extracted more from the arrangement.

A significant restructuring took place in the first half of FY19, including the closure of its hedge fund business, an exit from its retirement living portfolio and the sale of its residential development sites.

Despite these efforts to resurrect the balance sheet, Blue Sky reported an underlying net loss after tax of $25.7 million for the first half of FY19, down by $41.8 million from its profit at the end of 2017.

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