BBI - Babcock & Brown Infrastructure

[Malindidzumu]

Here's a link to one of the articles I read which I forgot to include in the previous post:

http://www.thewest.com.au/aapstory.aspx?StoryName=559572

 

[Malindidzumu]

Prior to the GFC there was talk of a BBI demerger where BBI would split into two entities, one being a pure-play transportation entity and the other being a pure-play energy transmission and distribution entity. I would be interested to hear the thoughts of others on this forum as to what they think the likelihood of such a demerger happening in the future is, assuming BBI survives its current difficulties.

From where I sit I can't imagine BBI demerging given its current situation where it is selling part if not whole interests in many of its better assets with acquisitions out of the question for the foreseeable future. What does everyone else think about this?

I would also be interested to hear whether any of you think BBI would be best served either going one way or the other i.e. Do you think it would be better for BBI to focus on one asset class instead of two?

 

[Tysonboss1]

Prior to the GFC there was talk of a BBI demerger where BBI would split into two entities, one being a pure-play transportation entity and the other being a pure-play energy transmission and distribution entity. I would be interested to hear the thoughts of others on this forum as to what they think the likelihood of such a demerger happening in the future is, assuming BBI survives its current difficulties.

From where I sit I can't imagine BBI demerging given its current situation where it is selling part if not whole interests in many of its better assets with acquisitions out of the question for the foreseeable future. What does everyone else think about this?

I would also be interested to hear whether any of you think BBI would be best served either going one way or the other i.e. Do you think it would be better for BBI to focus on one asset class instead of two?

I can't see it happening in the near term, not until credit rating and divs are restored, and Beppa is dealt with.

I think I would prefer to have BBI remain intact, I quite like having the exposure to both asset types under the one roof.

 

[Viva_Las_Vegas]

So what happens to BEPPA in 2012 assuming BBI pays holders the $1.20?
Does BEPPA cease to exist?
I would not be surprised to see BBI hit $0.07 this week if the news of the port in WA is 100% correct. Good to see a positive amoungst all this doom and gloom

 

[Tysonboss1]

So what happens to BEPPA in 2012 assuming BBI pays holders the $1.20?
Does BEPPA cease to exist?
I would not be surprised to see BBI hit $0.07 this week if the news of the port in WA is 100% correct. Good to see a positive amoungst all this doom and gloom

A stock like Beppa is not really designed to be around for ever, at each reset date Beppa shareholders will be offered new terms, the next reset date is in 2012.

in 2012 BBI may try to persuade Beppa holders to remain in Beppa by raising the interest rate to some where near 10%.

But generally at each reset date some shareholders will cash out in either cash or BBI shares and some will stay on, so generally at each reset date the total number of Beppa shares on issue gets less and less.

If by 2012 the BBI share price is still at a big discount to Beppa's $1 face value then you may see a large portion swapping a decent chunk of their beppa for BBI which has the chance of diluting BBI.

How ever if BBI's share price has recovered to more than the one dollar face value, beppa shareholders would probally elect to take the 20c interest payment and retain the $1 face value at 10% interest. in the past investors would hold a stock like beppa for income (however this is blowen out of the water because interest is currently differed) So investors would simply be looking at which option will lead to them havin g the higher cashflow.

The options that Beppa shareholders take in 2012, all depends of what happens between now and then, it depends on bbi's shareprice in 2012, it depends on the reset terms offered and it depends on wether divs and interest are being paid on BBI or Beppa.

 

[hardyakka]

I would also be interested to hear whether any of you think BBI would be best served either going one way or the other i.e. Do you think it would be better for BBI to focus on one asset class instead of two?

Very interesting proposition, but as has already been said it would be off the cards until BBI returns to normality and any split would not be possible until the BEPPAs were paid out.

From a personal perspective I would not like to see BBI split up for a few reasons, these being:

a) Diversification of asset types, risk profile and income streams.
b) Any split would be bound to result in duplicated functions and hence costs.
c) Whilst about 80% is a regulated income stream, it adds upside when there is a % of assets unregulated eg Euroports, assuming they are not flogged.

Cheers

 

[alphaman]

Generally split up is better. A single segment business is more transparent and easier to analyse. It's also easier to align the manager's interest to shareholder return. These practical benefits far outweigh the saving on duplication costs.

Smart investors do the diversification themselves. When a company demerges to two, you can choose to keep both, sell one, or sell both, depending on your outlook of the assets.

Managers and directors always like bigger companies though, not just for the money, but for bragging rights too. So it's a choice of whether you want to do yourself a favour, or do them a favour.

 

[sinner]

BEPPA up 15% as of right now, with bid units outnumbering offered units by almost 6:1.

Volume seems relatively light but I am not so familiar with this stock.

So far the best performer in my portfolio for the day :

 

[banska bystrica]

BEPPA are outstanding value at less than a cent premium to BBI. I bought another 200K at 6c. Asset sales are the key. I see Xstrata is all cashed up now and looking for assets. DBCT would be a very good buy for Xstrata as a user of the port.

 

[Viva_Las_Vegas]

Banksa, I too could not resist BEPPA today and purchased my first batch of 20,000. Who is this Xstrata mob you are referring to? Buying 200k of them, you must be confident in the $1.20 payment in 2012....
Interestingly not much movement in BBI considering the port news on friday??? What is your take on this?

 

[Tysonboss1]

BEPPA are outstanding value at less than a cent premium to BBI. I bought another 200K at 6c. Asset sales are the key. I see Xstrata is all cashed up now and looking for assets. DBCT would be a very good buy for Xstrata as a user of the port.

I increased my Beppa holding by 50% today as well, I still don't hold any where near as many as you though.

 

[sinner]

Interestingly not much movement in BBI considering the port news on friday??? What is your take on this?

Because the port news does not add value to BBI, only increases their chance of paying off debt to holders.

 

[Viva_Las_Vegas]

I understand the port news doesn't "add" value to BBI, but I thought it would stimulate more interest in it since now it can pay off more debts by potentially selling this infrastructure at well over book price...........I hope as I am exposed to BBI and BEPPA now.

 

[onshow]

looks like the market is going to have another good day tommorrow by the way the overseas markets are heading tonight. Im thinking we might even see BBI up around the .06 mark tommorrow with the number of buys heavily out weighing the sells and the upward trend that the markets are taking at present with europe up around 2% as i write. What do others think?

 

[Viva_Las_Vegas]

I really hope you are right. Seeing a sea of green tomorrow would be awesome.
I think there is a good chance, but judging by BBI today, it was very slow to rise, which surprised me.
Is anyone willing to speculate on how the market would react to BBI SP if BBI were to sell the westnet rail link thing they own 100% of?
Would it be seen as a positive for providing liquidity to pay off debt, or a negative for getting rid of such a good asset with future potential?

 

[onshow]

I really hope you are right. Seeing a sea of green tomorrow would be awesome.
I think there is a good chance, but judging by BBI today, it was very slow to rise, which surprised me.
Is anyone willing to speculate on how the market would react to BBI SP if BBI were to sell the westnet rail link thing they own 100% of?
Would it be seen as a positive for providing liquidity to pay off debt, or a negative for getting rid of such a good asset with future potential?

Thats a very good question! Its a bit of a catch 22 in one sence selling this asset would greatly reduce debt but then again like you mention its a very good one to hold onto with the number of smaller miners in the midwest that they could take advantage of the inferstructure needed to be built to service these companys! I guess they will have to work that one out for there selves! lol thats why they get the big bucks! lol

 

[Viva_Las_Vegas]

I would assume companies with some forsight would already be considering an offer on that asset. As for the big bucks...... I WANT THE BIG BUCKS lol

 

[Malindidzumu]

Hi VLV,

If the management of BBI are to sell 100% of anything I would much rather it be DBCT than any of their other major assets such as WestNet Rail, PD Ports, BBI Euroports etc. In the case of WestNet Rail, I think it is an asset that has enormous potential in the long-term future with companies such as Gindalbie, but such mining companies are exposed to political risk given recent and ongoing events with the FIRB and investments to be made in these companies by Chinese entities which were originally given the go-ahead and which are now under review as the government debates the pros and cons of foreign investment in Australian mining companies. The last thing companies such as Gindalbie need in the GFC is to receive mixed signals from the government, yes one minute, no the next. The two issues at play here are the uncertainty surrounding the survival of mining companies in WA and whether or not the government prefers Australian mining companies go bankrupt rather than end up with major Chinese investments which at the end of the day could be the only thing saving them from bankruptcy, continued uncertainty which holds significant risk to the value of WestNet Rail going forward should mining companies with such major projects in the pipeline as Gindalbie go out of business. As things stand now, BBI is heavily reliant on the growth of iron ore volume that is expected to be provided by Gindalbie not to mention others and if that was to suddenly disappear it will have a very negative impact on WestNet Rail as an attractive asset going forward.

 

[banska bystrica]

WestNet Rail is a rail infrastructure owner and rail access provider operating in Western Australia (WA) with a long-term arrangement to lease track from the WA Government. WestNet Rail operates approximately 5,100 kilometers standard, narrow and dual gauge network in the south-west of WA which serves as a crucial transport link in the region.
WestNet Rail is a regulated monopoly with largely stable revenue streams through long term access agreements with its customer base. The below-rail business revenue is derived from access charges paid by above-rail operators or directly by underlying customers. Security of revenue is underpinned by:

• rail transport being a small part of the overall production cost of the commodities transported.
• the fact that resources customers typically seek long term contracts (like those already in place) to ensure adequate access to the supply chain.
• the existence of some take-or-pay arrangements.

 

[banska bystrica]

I'll be here every day. Suspended for a month across the road for "profanity" when I used the word "carp" and apparently "someone" also complained that my signature tag was promoting BBI which is not allowed. News to me.

Hope the moderators here are a bit more tolerant.