Refco on the block for USD 768 million

Refco finally filed for bankruptcy protection this week and agreed to sell its core futures brokerage business for USD 768m.


The bidders include an investor group being led by a private equity fund, JC Flowers, run by former Goldman alumni Christopher Flowers, and the US broker-dealer Interactive Brokers Group.


Refco's futures brokerage could be the subject of rival bids from Dubai Investments, part of the Dubai government, and Man Group, which may be waiting in the wings to pick up parts of Refco that match Man's own brokerage profile.


The bankruptcy court is expected to establish procedures for the submission of competing proposals.


The interest so far appears to be in the regulated futures arm rather than in the unregulated capital markets operation that specialises in dealing with hedge funds and other professional players. The capital markets arm has effectively closed to new business.


Refco's regulated subsidiaries, including the key futures brokerage business and its broker-dealer unit, Refco Securities, have not filed for bankruptcy protection.


Refco was, until two weeks ago, the biggest independent market maker for commodities and financial futures, allowing funds and companies to trade contracts on commodities, bonds and currencies.


Refco has operations in 14 countries, with 2,400 employees and more than 200,000 customer accounts. It became a public company in August this year with an IPO priced at USD 22, its shares moving up 25 per cent on opening.


Investors started bailing out following news two weeks ago that Refco's chief executive, Phillip Bennett, had been charged with defrauding investors by using a hedge fund to hide USD 430m of debts. Refco then admitted its financial records going back to 2002 could not be relied upon.


Bennett, a British financier who has lived in the US for more than 20 years, is on bail and confined to his home in New York on an electronic tag while investigations continue.


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