Paperlinx has taken steps to eliminate a $285 million liability by making a buyout offer to hybrid security holders.

The paper merchant raised $285 million in 2007 with an issue of hybrid securities at $100 each. Its "off-market scrip takeover offer" has now put an implied price of $14 on the hybrids. The hybrids were priced at $12 before the offer was made.

Under the terms of Paperlinx's buyout offer, each hybrid security would be exchanged for 250 ordinary shares. That would leave hybrid holders owning about 54% of the group.

Paperlinx is determined to reach a deal because it can't alter its capital structure without first buying back the hybrids.

Paperlinx said a deal was "fundamental" to its "operational recovery". Buying back the hybrids is expected to provide "enhanced access to capital" and "enhanced terms of trade".

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The company said hybrid holders would also benefit through a "more transparent value proposition".

However, the offer has been criticised by Graham Critchley, who is convenor of Paperlinx PIGS, a group that represents some hybrid securities holders.

Critchley said Paperlinx would only be able to remove the hybrids liability from its balance sheet if all hybrid holders accepted the offer. He forecast that Paperlinx would struggle to buy back more than 20% of the securities.

"The problem they have is that it doesn't solve their balance sheet problem unless there is 100% conversion and there's no chance of 100% conversion," he told ProPrint.

Critchley also said that Paperlinx would eventually make an improved offer. "This is just the start of a long game," he said.

Paperlinx shares have fallen from 5.8 cents to 5.2 cents since it tabled its offer.

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