BBI - Babcock & Brown Infrastructure

[banska bystrica]

There is a lot of blatant downramping going on at another forum regarding European banks not refinancing Australian companies etc etc. A particular poster with an ulterior motive is downramping about BBI not being able to refinance it’s European recourse debt.
Well I’ll give you the FACTS.
This is BBI’s recourse debt as at December 24, 2008:

Corporate bridge facility: AUD$100M Due: Feb 2009
UK revolving facility: 85M GBP Due: Feb 2010
NZ revolving facility: NZ$125M Due: Dec 2010
NZ secured bonds: NZ$150M Due: Dec 2010
A$ corporate bank debt AUD$218M Due: Dec 2011
US$ corporate debt US$515M Due: Dec 2011.

Does anyone see much “European bank” exposure?

I don’t. Be very careful of downrampers who have no idea.

 

[noirua]

There is a lot of blatant downramping going on at another forum regarding European banks not refinancing Australian companies etc etc. A particular poster with an ulterior motive is downramping about BBI not being able to refinance it’s European recourse debt.
Well I’ll give you the FACTS.
This is BBI’s recourse debt as at December 24, 2008:

Corporate bridge facility: AUD$100M Due: Feb 2009
UK revolving facility: 85M GBP Due: Feb 2010
NZ revolving facility: NZ$125M Due: Dec 2010
NZ secured bonds: NZ$150M Due: Dec 2010
A$ corporate bank debt AUD$218M Due: Dec 2011
US$ corporate debt US$515M Due: Dec 2011.

Does anyone see much “European bank” exposure?

I don’t. Be very careful of downrampers who have no idea.

Hi, The Banking Syndicate is dominated by European Institutions...in accordance with compareshares article.

 

[random]

In regard to the purchasing of additional shares in Euroports, shares will be taken up by Antin Infrastructure Partners 19.9% and Babcock and Brown European Infrastructure Fund BBEIF 9.8%.
What exactly is BBEIF?
Is this an offshoot of BNB?
I am unsure of this.
Could someone answer this for me?

If it is an offshoot the obvious question then has to be asked about the share purchase finalization.

 

[banska bystrica]

Hi, The Banking Syndicate is dominated by European Institutions...in accordance with compareshares article.

I referred to RECOURSE debt, not non-recourse. RECOURSE debt is corporate debt. Please show me where European banks are owed money by BBI at the RECOURSE level.

 

[banska bystrica]

The following article from Intelligent Investor might interest forum members:

Assets we can't live without
Essential infrastructure assets are those which are essential to the functioning of modern society. Examples include toll roads, airports, power stations, pipelines and ports. Due to their monopolistic nature, these assets tend to be regulated by their respective governments.
Regulated or unregulated, though, the cash flow from these assets tends to be highly predictable and relatively immune to the economic cycle. People need water and electricity even in the worst of times. But that hasn't stopped the share prices of the listed players being pummelled over the past 12 months. In fact, some funds are close to insolvent, such has Babcock & Brown Power and Babcock & Brown Infrastructure (both have suspended distributions and are undertaking asset sales in order to keep the bankers at bay).
The reason is debt, and lots of it. Infrastructure funds were front and centre of the credit bubble of the past few years. Incredibly favourable borrowing terms enabled infrastructure funds and their inappropriately incentivised managers to pay exceptionally high prices for assets and to fund juicy but unsustainable distributions. Over the past five years, Macquarie Infrastructure Group returned $3.2bn to its owners - more than double the $1.6bn of cash flow it received from its underlying assets.
Ponzi scheme no more
Not only are the Ponzi-scheme days over, but several of the weaker players - mostly from the Babcock & Brown stable - are having trouble refinancing their debt at all. Those that can obtain funds are paying substantially higher margins. All of which explains why no one wants to touch infrastructure investments with a ten-foot barge pole.
Herein lies the potential opportunity. The underlying assets remain attractive - in fact they've become more attractive. With corporate profits disappearing faster than Bernie Madoff's friends, the relative stability and certainty provided by essential infrastructure is a safe haven. And the alternatives are offering very little in the way of returns.
The 'flight to safety' has pushed government bond yields to extraordinarily low levels. Lend your money to the US government for the next 30 years and you'll earn a return of 3% per annum; buy UK bonds and you'll earn 4% over the same period; and the 15-year Australian government bond is priced to yield 4.3%.
Low long-term interest rates make essential infrastructure offering returns of 8% and 9% an attractive alternative. There are endless opportunities to invest in the sector in Australia, spread across a wide range of asset types and regulatory regimes. At one end of the spectrum, there are those that look reasonably priced and have minimal need to refinance debt, such as Macquarie Airports and Challenger Infrastructure Fund. And, at the other, there are those, such as Babcock & Brown Infrastructure (BBI), with pressing refinancing requirements, which are trading for a small fraction of their underlying asset value - but that asset value may not do you much good if the fund doesn't survive.
Plenty of cash looking for a home
For those funds that desperately need to sell assets, there does seem to be an active market among unlisted funds. A recent article in Breaking Views highlighted some US$94bn sitting in infrastructure funds that's yet to find a home. Late last year, QIC bought 50% of Powerco, a New Zealand power company, from BBI. BBI also sold 20% of its Euroports business to Antin Infrastructure Partners, and, in December, troubled Spanish construction group Sacyr Vallehermoso sold its toll road business to Citigroup's infrastructure fund for 7.9bn euros. There are no guarantees. But for the reasons outlined earlier, there are buyers, which is more than can be said for most financial assets at the moment.
And not only have the assets become more attractive, but so have the funds. Until now, the likes of Macquarie and Babcock have made fortunes through their insidious management contracts, and no one else has made a cent. But plummeting share prices have forced managers to accept less. Some funds have completely internalised their management; others have dramatically cut fees and beefed up the independence of their boards; and the rest are moving in the right direction. Babcock & Brown Wind recently internalised its management and paid off its former manager, Babcock & Brown, to the tune of $40m - undoubtedly the best investment it's made.
It's a broad sector and, with complicated structures and frequent shuffling of assets, it's not easy to analyse. So far, at The Intelligent Investor, we've got positive recommendations on Southern Cross SKIES (a security issued by Sydney Airport trading under the ASX code SAKHA) and BBI EPS (ASX code BEPPA) but they're both income securities and suitable only for relatively sophisticated investors who understand such investments. But I'll be spending a lot of 2009 prospecting for further opportunities. For those looking to sidestep the recession, it might pay to do the same.

Disclosure: The author, Steve Johnson, owns shares in some of the stocks mentioned in this article, as do other staff members. For a full listing, see the staff portfolio on the website.

 

[noirua]

I referred to RECOURSE debt, not non-recourse. RECOURSE debt is corporate debt. Please show me where European banks are owed money by BBI at the RECOURSE level.

That may be the point here. Non-recourse debt can be seen as recourse, in a manner of speaking, if it was not set as overcollateralized. That depending on the loan to value ratio that is set - allowing overcollateralization - or/and non-recourse debt protection that may be in place.

 

[Tysonboss1]

I have done a bit of readng about the BBI pref share - BEPPA

am I correct in thinking that Beppa which is currently about 13c will have a dividend of about 5% based on it's face value of $1 which is over 30% based on current purchase price, which although is not being paid currently will accumulate and be paid at a later date.

Also at the reset date provided the company has not gone bust, will each BEPPA stock be paid out at it's face value of $1,... what is the exact process at the reset date.

 

[banska bystrica]

The reset date is July 1, 2012. At that time, BEPPA will be reset for another period with a different interest rate (a lot higher than BBSW+115 I would suggest).
BEPPA holders, on July 1 2012, can elect to:

1. Be paid out at $1 per BEPPA.
2. Receive $1's worth of BBI securities for each BEPPA held.
3. Agree to the new reset conditions and leave your money in BEPPA.

All this is dependent on BBI surviving until 2012.

Note: In option 2, you receive $1 worth of BBI regardless of the BBI price at that time. If BBI are $1 you receive 1 for 1. If BBI are 10c, you receive 10 BBI for every BEPPA you hold.

 

[random]

So in about 3 weeks we get to see the 1/2 year results.
If our cash flow remains the same we should all be very happy. Some sources of income may drop (my guess is the European Ports) but then some may be up.
The DBCT has been operating at full capacity i believe and of course we now have a new loading fascility which will be operating as well but the figures for this won't show up till the next 1/4.
All in all sailing along.......la de da...... until the 25th of Feb.



Don't be silly and get caught day trading - cause she's a wild one.

 

[random]

"opportunist"
"One who determins his actions by circumstances not by principles"
- ref Collins dictionary.

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
- Mr Warren Buffet on his investment outlook.

This is the time and this is the place. Sure it may go up and then down again by a few cents but isn't it fun.

 

[ianm94]

Banksa,

I am following the APR plan and therefore in long term for
ASSET SALES
PAY DOWN CORPORATE DEBT
RESUME DIVIDENDS
What other potential in this market is there to purchase stock for the same value as their future dividends?

Like many other readers I have valued the content of your posts very highly.

I have a question regarding the following along the lines of how will these jobs now be affected with the continued downturn in the UK, will more money be poured into jobs in their infastracture, and do you know how this has progressed to date?

"PD Ports brings jobs and new projects to the Tees; MIDDLESBROUGH based PD Ports has enjoyed an exciting start to 2008 with approval of major expansion plans and an agreement with Tesco in what is potentially the biggest deal in over 30 years.(News)

Article from:
Evening Gazette (Middlesbrough, England)
Article date:
May 22, 2008.
With the expected creation of more than 6,300 jobs when both projects are delivered, PD Ports has made its mark as one of the largest employers and key economic drivers in the North-east.

In February, the campaign to build a new deep sea container terminal at Teesport, known as The Northern Gateway (NGCT) was granted final approval by the Secretary of State for Transport, Ruth Kelly. This was less than 22 months after plans were initially submitted in April 2006. "

 

[mikes]

regarding the apr scenario - gremlins

what is probability of scrip placement & large rights issue of bbi, or possibly issuing of beppa like scrip/notes having higher priority for repayment than beppa in gumming up the works - of course with massive fees to the insiders & their mates running the show.

 

[banska bystrica]

regarding the apr scenario - gremlins

what is probability of scrip placement & large rights issue of bbi, or possibly issuing of beppa like scrip/notes having higher priority for repayment than beppa in gumming up the works - of course with massive fees to the insiders & their mates running the show.

Probability of NIL. You do realize Directors of BBI have a duty to "ACT IN THE BEST INTERESTS OF BBI SECURITYHOLDERS" and BBI EPS Directors also have a duty to "ACT IN THE BEST INTERESTS OF BEPPA HOLDERS".

Therefore, your scenario will not happen. Why would they do a rights issue at these prices? It's unnecessary. Once they sell DBCT, there will be no need to raise cash. Their corporate debt will be minimal and their cash flow from the remaining assets will be more than enough to cover asset level debt and resume distributions or alternatively they could elect to withhold distributions for another three years and save the cash to pay out BEPPA in 2012.

Now imagine what the security price of BBI will do if corporate debt is nil and BEPPA debt is nil circa 2012?

 

[drsmith]

If BBI's directors could raise equity they would.

Look at the number of companies with far healthier financials that are doing this.

 

[banska bystrica]

They cannot raise equity at current prices so forget it. It's not happening. There is no need for it either. A 100% of DBCT will release enough equity to pay down the corporate debt. A 49% sale would pay down enough corporate debt until 2012.

 

[drsmith]

They cannot raise equity at current prices so forget it. It's not happening.

That though has nothing to do with the need for equity. As for BBI's need for equity it's current distribution policy speaks volumes.

I do however agree with your prophecy of doom for BNB.

 

[ianm94]

The question I was asking to Banska is a fairly generalised one so wondering if anyone else might have trolled across some details on the following:

Question was with the expected creation of more than 6,300 jobs on what I believe was upon the completion of both projects in PD Ports, any ideas out there if the UK Govt. is getting involved in supporting their infrastructure construction to help mobilise their economy.

This is an absolutely huge project and completely overshadows DBCT as one of the jewels for BBI.

Was also after details on how far the construction has progressed so far.

Thanks all.

 

[ianm94]

Just received text notice from etrade - price has risen by 30%

Market likes the positive ann today of working towards separation of the management rights, with more good news to come

 

[Tysonboss1]

The reset date is July 1, 2012. At that time, BEPPA will be reset for another period with a different interest rate (a lot higher than BBSW+115 I would suggest).
BEPPA holders, on July 1 2012, can elect to:

1. Be paid out at $1 per BEPPA.
2. Receive $1's worth of BBI securities for each BEPPA held.
3. Agree to the new reset conditions and leave your money in BEPPA.

All this is dependent on BBI surviving until 2012.

Note: In option 2, you receive $1 worth of BBI regardless of the BBI price at that time. If BBI are $1 you receive 1 for 1. If BBI are 10c, you receive 10 BBI for every BEPPA you hold.

At the reset date are you sure that it is the shareholders who decide which option they want to take, or is it the directors that decide for you.

I have a few BEPPA already and I want to buy more but it just seems to good to be true.

at todays prices if you hold till the rest date you will get a massive 1000% capital gain in 3.5 years, with a 50% cashflow return in the mean time (compounded at 5% till the payment is made).

This just seems far to good to be true, what is the real risk here.

 

[banska bystrica]

The risk is that BBI is put into administration, the assets are sold and after the banks get their debt repaid, there is nothing left for BEPPA holders. That's it in a nutshell.