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Hopefully we can fully cut the cord with a name change and re branding.
anyone know if this is likly.
anyone know if this is likly.
BBI - Babcock & Brown Infrastructure
- Thread starter roland
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From Comsec's Insight today:
Babcock & Brown Infrastructure: A bank + buyers market
Last Traded: $0.03
Market Cap: $71,040T
Sector: Utilities Summary of report dated 05/03/09
ACCUMULATE / MARKET PERFORM
Valuation: $0.54
What’s new? The vulnerable position of BBI couldn’t be better exemplified by the circumstances surrounding the sale of a 58% stake in Powerco (NZ) where:
- Buyer leverage: The buyer (QIC) was able to leverage a significantly better deal when negotiating completion of the sale with BBI (the effective price was 9% lower compared to when the transaction was announced in November).
- Bank leverage: The banking syndicates behind BBI‟s corporate debt imposed new requirements on BBI including a cash sweep in addition to a ~200bps increase to the debt margins until a stable investment grade credit rating is obtained.
Significant asset sales required
We estimate that BBI needs to repay somewhere between $700-$1,000m in corporate debt to improve ICRs to at least >2.0X by FY11 and achieve an investment grade corporate credit rating.
The amount of corporate debt needed to be repaid and the impact on BBI’s credit metrics will ultimately depend on the sale prices received but also the mix of asset sales given their varying cash flow profiles. If we assume BBI sells 49% in DBCT, 49% in PD Ports and sells down to a 25% interest in Euroports at CommSec DCF valuations progressively over the next 18 months, BBI will not reach an ICR >2.0X until FY11.
Given asset sales are likely to be increasingly difficult, and that credit agencies will want to see a sustainable set of credit metrics, an upgrade to investment grade of BBI’s corporate debt is unlikely to occur until well into FY11 and possibly FY12.
BBI must refinance a $177m (£85m) corporate debt facility in February 2010. Asset sales must therefore be completed by this date as BBI is likely to have difficulty in refinancing this facility. BBI has very significant FY10 refinance task as it must refinance a total of ~$1b asset level debt and the corporate facility.
BBI’s banking syndicate clearly wouldn’t want to see BBI fail or end up in a position where it is unable to retain the necessary management team to negotiate and execute on asset sales. But equally the banks have an incentive (and ability) to further increase debt margins when subsequent asset sales are conducted further hindering BBI’s ability to achieve an investment grade corporate credit rating and commence paying distributions to equity.
Investment thesis
In light of BBI’s current position we have downgraded our recommendation to ACCUMULATE / MARKET PERFORM after admittedly being wrong for so long.
We were previously of the view that BBI would be able to adequately manage its capital issues and that the risks, although significant, were priced in. It is still possible that BBI will find a path to salvation and given the current equity price virtually assumes complete failure, there is no point going completely negative now.
Still it is hard to escape the fact that BBI faces some enormous challenges ahead if credit markets and the macro environment remain depressed in terms of refinancing its debt, undertaking assets sales and reducing gearing to the appeasement of lenders and credit agencies.
Our DCF asset based valuation is 54 cents per security (down 80cps) based on updated forecasts from the 1H09 result, the sale of Powerco, and 200bps higher cost of corporate debt.
We have also increased the cost of equity from 12% to 15% to reflect BBI’s capital risks. We have a 12 month target price of 27cps based on a 50% discount to DCF
Babcock & Brown Infrastructure: A bank + buyers market
Last Traded: $0.03
Market Cap: $71,040T
Sector: Utilities Summary of report dated 05/03/09
ACCUMULATE / MARKET PERFORM
Valuation: $0.54
What’s new? The vulnerable position of BBI couldn’t be better exemplified by the circumstances surrounding the sale of a 58% stake in Powerco (NZ) where:
- Buyer leverage: The buyer (QIC) was able to leverage a significantly better deal when negotiating completion of the sale with BBI (the effective price was 9% lower compared to when the transaction was announced in November).
- Bank leverage: The banking syndicates behind BBI‟s corporate debt imposed new requirements on BBI including a cash sweep in addition to a ~200bps increase to the debt margins until a stable investment grade credit rating is obtained.
Significant asset sales required
We estimate that BBI needs to repay somewhere between $700-$1,000m in corporate debt to improve ICRs to at least >2.0X by FY11 and achieve an investment grade corporate credit rating.
The amount of corporate debt needed to be repaid and the impact on BBI’s credit metrics will ultimately depend on the sale prices received but also the mix of asset sales given their varying cash flow profiles. If we assume BBI sells 49% in DBCT, 49% in PD Ports and sells down to a 25% interest in Euroports at CommSec DCF valuations progressively over the next 18 months, BBI will not reach an ICR >2.0X until FY11.
Given asset sales are likely to be increasingly difficult, and that credit agencies will want to see a sustainable set of credit metrics, an upgrade to investment grade of BBI’s corporate debt is unlikely to occur until well into FY11 and possibly FY12.
BBI must refinance a $177m (£85m) corporate debt facility in February 2010. Asset sales must therefore be completed by this date as BBI is likely to have difficulty in refinancing this facility. BBI has very significant FY10 refinance task as it must refinance a total of ~$1b asset level debt and the corporate facility.
BBI’s banking syndicate clearly wouldn’t want to see BBI fail or end up in a position where it is unable to retain the necessary management team to negotiate and execute on asset sales. But equally the banks have an incentive (and ability) to further increase debt margins when subsequent asset sales are conducted further hindering BBI’s ability to achieve an investment grade corporate credit rating and commence paying distributions to equity.
Investment thesis
In light of BBI’s current position we have downgraded our recommendation to ACCUMULATE / MARKET PERFORM after admittedly being wrong for so long.
We were previously of the view that BBI would be able to adequately manage its capital issues and that the risks, although significant, were priced in. It is still possible that BBI will find a path to salvation and given the current equity price virtually assumes complete failure, there is no point going completely negative now.
Still it is hard to escape the fact that BBI faces some enormous challenges ahead if credit markets and the macro environment remain depressed in terms of refinancing its debt, undertaking assets sales and reducing gearing to the appeasement of lenders and credit agencies.
Our DCF asset based valuation is 54 cents per security (down 80cps) based on updated forecasts from the 1H09 result, the sale of Powerco, and 200bps higher cost of corporate debt.
We have also increased the cost of equity from 12% to 15% to reflect BBI’s capital risks. We have a 12 month target price of 27cps based on a 50% discount to DCF
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What is the quality of the assets that will be left after the sale of the assets mentioned in the commsec report?
The quality of the assets isn't really the issue after the sales process has been completed to reduce debt investorpaul. All are fine assets and all will produce good income and cash flow in time (given the time).
A more appropriate question would probably be which assets and what percentage of these assets do we continue to own after the sales.
This in turn leads to the forthcoming sp and the question of income generated to issue any dividends which might be distributed.
All a little way off yet however.
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they are only selling a % of the assets, so they still retain a stake in them.
such as the powerco sale where they sold 58% so they retain 42%.
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I think the offers for DBCT are very strong. Therefore, I wouldn't be surprised if they sold 100% of it. It would go a long way to clearing their corporate debt and they still have their best asset (NGPL).
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From ABN Amro, Sydney, Australia
BBI has announced the following amendments will be proposed to the reset terms and trust deed of the SPARCS:
1. BBI will not make any cash distributions to either BBI Stapled Securities or the BEPPAS for as long as there are SPARCS on issue - we are of the view that BBI would need to buy back the SPARCS anyway (after it has paid down corporate debt) before it could resume paying distributions or be considered investment grade. Our discussions with the company indicate that BBI is restricted to buying back the SPARCS on certain dates which are yet to be finalised (and will depend on the outcome of the meeting and vote of SPARCS holders).
2. SPARCS holder will have a right of conversion into BBI stapled securities in the event BBI fails to pay interest on the SPARCS within 20 business days of due date.
3. SPARCS holder will have a right of conversion into BBI stapled securities in the event BEPPAS are exchanged to BBI Stapled Securities as a result of a change to the responsible entity triggering "a change of control" event.
4. The first reset date will be changed from 17 November 2009 to 17 November 2010
Essentially these new terms will rank SPARCS ahead of the BEPPAS. We don't consider the impact of the Spark reset terms that material in light of the bigger picture, which is the need for asset sales. Without significant asset sales BBI are in no position to resume paying distributions on either the BEPPAS or its stapled securities. With BNB now in voluntary administration we expect the asset sale process will now be entirely handled externally by BBI's advisors - other than that we don't expect any impact to BBI other than a possible change to the Responsible Entity. We understand BBI are still seeking legal advice regarding the issue of new BEPPAS (in the event the Responsible Entity changes from a BNB controlled entity triggering a conversion of the current issued BEPPAS).
Resolution of the BEPPAS and asset sales remain key to realising any shareholder value.
BBI has announced the following amendments will be proposed to the reset terms and trust deed of the SPARCS:
1. BBI will not make any cash distributions to either BBI Stapled Securities or the BEPPAS for as long as there are SPARCS on issue - we are of the view that BBI would need to buy back the SPARCS anyway (after it has paid down corporate debt) before it could resume paying distributions or be considered investment grade. Our discussions with the company indicate that BBI is restricted to buying back the SPARCS on certain dates which are yet to be finalised (and will depend on the outcome of the meeting and vote of SPARCS holders).
2. SPARCS holder will have a right of conversion into BBI stapled securities in the event BBI fails to pay interest on the SPARCS within 20 business days of due date.
3. SPARCS holder will have a right of conversion into BBI stapled securities in the event BEPPAS are exchanged to BBI Stapled Securities as a result of a change to the responsible entity triggering "a change of control" event.
4. The first reset date will be changed from 17 November 2009 to 17 November 2010
Essentially these new terms will rank SPARCS ahead of the BEPPAS. We don't consider the impact of the Spark reset terms that material in light of the bigger picture, which is the need for asset sales. Without significant asset sales BBI are in no position to resume paying distributions on either the BEPPAS or its stapled securities. With BNB now in voluntary administration we expect the asset sale process will now be entirely handled externally by BBI's advisors - other than that we don't expect any impact to BBI other than a possible change to the Responsible Entity. We understand BBI are still seeking legal advice regarding the issue of new BEPPAS (in the event the Responsible Entity changes from a BNB controlled entity triggering a conversion of the current issued BEPPAS).
Resolution of the BEPPAS and asset sales remain key to realising any shareholder value.
BB,
The whole SPARCS issue had the potential to further seriously damage the credibility of BBI from the investor viewpoint. The way that the BBI Responsible Entity and management have dealt with matter have not only averted this, but they dealt with it in a very positive way.
This clearly demonstrates to the market that there is a competent management team which looks after the interests of investors, even when it has massive pressure from lenders etc.
This sort of competency does not go unnoticed and is another tick in the box of restoring institutional confidence in BBI.
Cheers
The whole SPARCS issue had the potential to further seriously damage the credibility of BBI from the investor viewpoint. The way that the BBI Responsible Entity and management have dealt with matter have not only averted this, but they dealt with it in a very positive way.
This clearly demonstrates to the market that there is a competent management team which looks after the interests of investors, even when it has massive pressure from lenders etc.
This sort of competency does not go unnoticed and is another tick in the box of restoring institutional confidence in BBI.
Cheers
Hey Guys
Seriously. But for the people that were still holding shares in BNB when it went under. I am sorry, but you have got no one to blame but yourselves.
And I have serious doubt's that BBI will last much longer either. If the Parent Company goes I don't think there will be much hope for the Satellites
BBI - $8Bil(AUS) in debt + $0 net profit = Voluntary Administration.
Cheers
Spartn
:viking:
Seriously. But for the people that were still holding shares in BNB when it went under. I am sorry, but you have got no one to blame but yourselves.
And I have serious doubt's that BBI will last much longer either. If the Parent Company goes I don't think there will be much hope for the Satellites
BBI - $8Bil(AUS) in debt + $0 net profit = Voluntary Administration.
Cheers
Spartn
:viking:
Spartn,
Have a read of the audited financials.
http://www.bbinfrastructure.com/media/406567/bbi 2009 interim results.pdf
If you think it is going to go the way of BNB then I would love to take off your hands any BEPPA or BBI you have for say 3.5 cents in the $. BNB noteholders were only offered 1 cent per $100.
Wishful thinking on my part I know
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Have a read of this:
http://imagesignal.comsec.com.au/asxdata/20090313/pdf/00936168.pdf
Now tell me what has BNB going into admin got to do with BBI? Some facts please, not "best guesses".
It's been tremendous picking BBI up for 2.5c in November and now getting BEPPA at under 5c in the dollar. I thank all the uninformed holders who have sold to me and I thank the uninformed media who have continually confused BBI with BNB and BNB's affiliate Babcock and Brown International.
To those that have confused Babcock and Brown International with Babcock and Brown Infrastructure, I thank you as well. Without all the misinformation and misunderstanding, I would never have got the opportunity to purchase such large quantities of BBI and BEPPA at such trashed prices.
The bottom line is that BBI has massive debt but it also has more than enough free cash flows to service that debt. Because of the fear, panic about the Babcock and Brown empire, we can buy BBI for 4c in the dollar and BEPPA unbelievably at 5c in the dollar. I've never seen a bigger bargain than BEPPA and I've been around equity markets for probably longer than a few of you have been alive.
If you don't understand BBI/BEPPA, then best to buy something else and leave the gems to those that do understand.
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BBI it is said will take up to 3 years for the orderly realization of assets to be completed to reduce debt.
NZ bondholders have moved to setup a struggle between the parent firms administrators and BBI which is effectively under sway of the groups major bankers.
The banks are owed A$3 billion in debt maturing up to 2011.
The recent BBI ASX announcement says that BNB going into administration will not have any IMMEDIATE impact on the entities that manage the day to day business of BBI.
NZ bondholders have moved to setup a struggle between the parent firms administrators and BBI which is effectively under sway of the groups major bankers.
The banks are owed A$3 billion in debt maturing up to 2011.
The recent BBI ASX announcement says that BNB going into administration will not have any IMMEDIATE impact on the entities that manage the day to day business of BBI.
In summary the purpose of administration is so that there can be an orderly realisation of assets (BNB assets) to maximise the return to creditors (bearing in mind their respective priorities).
An administrator is bound by existing contractual arrangements and only has further rights to recover monies in certain specific circumstances, for example if a director gave a personal guarantee and tried to quarantine his liability by transferring personal assets to a spouse or trust within the previous 12 months or payment of a bonus when the company was insolvent (as was the case with $2M with Storm).
The primary BNB assets that may affect BBI are BNB's 8% holding in BBI and to a much lesser extent the management agreement. BBI owes BNB zilch by way of debt.
In both the above the administrator has no more rights than any other unitholder and may not exercise any powers that BNB does not already have in the management agreement. My analysis of the management agreement summary previously was administration constitutes a management agreement termination event. here BBI is in the position of strength.
In summary the administration of BNB is a massive benefit for BBI and talk of a "fight" between BNB and BBI is incorrect as BNB basically has no rights or cause upon which to base such
Cheers
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OK, now I am sort of getting this.
So currently those BEPPA "shares" selling for around the $0.05 mark, means they have a $1 paper value, being sold cheap by people thinking they'll never see that dollar right?
Now I have another question......
Does this "I owe you" BEPPA stock/share have an expiry date? Can BBI call for money from BEPPA holders as in the example of the QLD guy buying 10, 000 units of something for $0.05, later finding out he then has to pay an additional $1 per unit?
Sorry for the stupid sounding questions, I just don't want to catch myself out like I did by buying BNB.
Seeing all the interest in BEPPA certainly gets me interested in it.
Thanks again.
OK, now I am sort of getting this.
So currently those BEPPA "shares" selling for around the $0.05 mark, means they have a $1 paper value, being sold cheap by people thinking they'll never see that dollar right?
Now I have another question......
Does this "I owe you" BEPPA stock/share have an expiry date? Can BBI call for money from BEPPA holders as in the example of the QLD guy buying 10, 000 units of something for $0.05, later finding out he then has to pay an additional $1 per unit?
Sorry for the stupid sounding questions, I just don't want to catch myself out like I did by buying BNB.
Seeing all the interest in BEPPA certainly gets me interested in it.
Thanks again.
There will be 2 components to the value of BEPPA, the $1 per convertible note and 20 cents, this being interest from Dec 2008 to Dec 2012 on the assumption it is unpaid by Dec 2012. So the value is $1.20.
BBI has net assets of $2.4 billion, this is AFTER recording a liability for the amount payable to BEPPA holders. BEPPA holders must be paid before BBI unit holders, so in effect the $2.4b is like a safety cushion. This assumes that assets fetch at least book value, in the case of PowerCo sold a few months ago the sale price was about 10% above book, other asset sales are likely (very likely IMO) to be at least comparable.
There is no additional amounts payable on BEPPA, they are priced low because the market is expecting them to go bust. I do not share this view and feel sheep follow sheep, but you must form your own view.
The type of units that you mention are called "partly paid" units and subject to a call. You can always tell these by the ASX code, they normally have a 5 letter code, the last 2 letters being CA, indicating a call is payable.
Always do your own research, here is the web site for BEPPA.
http://www.bbinfrastructure.com/bbi-investor-information/bbi-eps-ltd.aspx
Cheers
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Thanks Hardyaka!!!!
Awesome explanation, thanks heaps.
I sure hope BBI doesn't go bust, I've lost a little on BNB and don't want to repeat my mistakes. I'll do my research and decide on what to do!
Cheers
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Are you sure you are not confusing Babcock and Brown International with Babcock and Brown Infrastructure?
Where have Babcock and Brown Infrastructure (BBI) ever said it will take up to three years for the ordely realization of assets?
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There's no such thing as a stupid question, most likly there are 50 other people wondering the same thing but didn't want to say anything.
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No questions are stupid. That's what a forum is about. Sharing knowledge.
By the way, I don't expect the share price to do much whilst Deutche Bank are dumping millions of BBI and BEPPA.
By the way, I don't expect the share price to do much whilst Deutche Bank are dumping millions of BBI and BEPPA.
ASX's disclosure rules are pretty slack when it comes to hybrids (actually probably slack in general). How do you know DB is also dumping BEPPA?
