J.B.Fairfax repays $170m margin loan

FAIRFAX Media's largest individual shareholder, John B.Fairfax -- who owns more than 14 per cent of the group -- has ended a recent run of speculative trading in the company's shares by repaying a $170 million margin loan.

FAIRFAX Media's largest individual shareholder, John B.Fairfax -- who owns more than 14 per cent of the group -- has ended a recent run of speculative trading in the company's shares by repaying a $170 million margin loan.

The move comes after The Australian revealed this week that hedge funds and other speculators had been short-selling Fairfax shares in an attempt to trigger a margin call on the loan.

It was also revealed that Mr Fairfax's private company, Marinya Media, had a CommSec margin loan that used 159 million Fairfax shares as collateral.

This speculation led Marinya's investment director, Patrick Joyce, to use this paper on Wednesday to warn the speculators that it was not vulnerable to such market moves, saying: "We have not been margin-called, and speculation that we have been is completely unfounded."

Mr Fairfax had taken out the margin loan to finance an effective buyout of the Marinya stakes of his brother Timothy and his sisters Ruth and Sally, as part of the Fairfax family's "intergenerational planning".

But it emerged yesterday that Mr Fairfax had paid off the loan overnight. Mr Joyce commented: "It had always been Marinya's intention that this facility should be a short-term measure."

It is understood that Marinya has found alternative financing -- not subject to the speculation associated with margin loans -- elsewhere.

Mr Joyce did not comment on this, but said that "Marinya's gearing levels have always been and remain conservative".

Amid a general malaise among media stocks, Fairfax shares this week hit five-year lows in the lead-up to Marinya's comments, amid significantly higher volumes than normal -- which traders said had a heavy short-selling component. Yesterday, as most media share prices collapsed once more, Fairfax shares closed just 1c lower at $2.90 after rallying on Thursday.

Mr Fairfax's three siblings had controlled 62 per cent of Marinya -- which owns 211 million Fairfax shares, or 14 per cent of the company. Mr Joyce said the end result of the restructure had been that "John now controls 100 per cent of Marinya".

Given that his siblings' stake in Marinya accounted for about 130.8 million shares, he has suffered a paper loss of $150 million on the Fairfax stake alone -- based on the $1.15 a share drop in the Fairfax share price since he moved to full control of Marinya.

The short selling of Fairfax stock -- calculated to trigger a margin call for Mr Fairfax -- appears to have been ill-founded.

To finance the transaction, Mr Fairfax's margin loan for $170 million was secured against 159 million of Marinya's 211 million Fairfax shares.

But with a maximum loan-to-valuation ratio of 65 per cent, Marinya could not have been margin-called under the terms of the facility unless Fairfax shares had fallen to a $1.64 price level.

Given that Marinya's 52 million Fairfax shares that were not included in the margin loan as collateral could also have been pledged, this implied an ultimate margin call figure of $1.23 a share -- well under half of the shares' current trading levels.

Sources close to the listed media group said the fact that the margin loan was no longer operational meant the removal of the large parcel of shares hanging over the market, which would help to "stabilise" the company's stock price.