BBI - Babcock & Brown Infrastructure

[drsmith]

I would be surprised and disappointed if they sold PD Ports for 300M GBP. That is not in keeping with their stated objective of selling assets at book value or above.

When selling assets every director's objective is to sell at or above book value. That does not mean they always can, particularly if they are acting as quasi administrators.

 

[nathanblack]

how do you think the DBCT announcement will go down? will it occur after hours with little or no trading halt required? or will they need a few days trading halt prior to announcement to prevent leaks? or a few days after announcement to allow digestion of news?

 

[hardyakka]

When selling assets every director's objective is to sell at or above book value. That does not mean they always can, particularly if they are acting as quasi administrators.

It also does not mean that they cannot sell at or above book, especially considering the additional revenue streams coming online for PD Ports.

Quasi-administrators, that I will put in the same category as the beloved death spiral. An entity either is or is not in administration. To my limited knowledge BBI is not, so any talk about quasi, pseudo, partial, thingymajig administration is simply a pile of horse manure.

Cheers

 

[random]

Whilst i like the fact that we have each and every one of our assets i think that we all agree that dbct is the crown jewel.
PD Ports is for sale as well as any entity of the portfolio is (for the right price) sure.

If we sell dbct as a whole for a figure in the 2.8b range i personally can't see why we would need to sell any other asset.

As time goes on i believe that our situation will get stronger due to increased cash flow in each and every business (including PD Ports now with the latest news posted) and reduction in debt will continue to be a priority of the board irrespective of any bank direction or desire but that is by and by.
Sure dividends could be delayed still but the increase in sp would be reward enough in my opinion.

So my question to the far more expert bean counters than myself is.....is this a realistic scenario.ie is the sale of dbct for a figure of 2.8b or more enough given our total current cash flow remains the same in other businesses (and for arguements sake that interest rates remain the same) for bbi to keep rolling.

If you think it is - as i do, why do we keep talking about additional sales at book prices or possibly below when it is simply not necessary? I don't get it.
Cheers

 

[hardyakka]

..is this a realistic scenario.ie is the sale of dbct for a figure of 2.8b or more enough given our total current cash flow remains the same in other businesses (and for arguements sake that interest rates remain the same) for bbi to keep rolling.

If you think it is - as i do, why do we keep talking about additional sales at book prices or possibly below when it is simply not necessary? I don't get it.
Cheers

Consider the following for DBCT:
a) It is loading at maximum capacity.
b) The queue of ships to be loaded = coal demand = pick up in markets.
c) It is a 5o year lease with 50 year option and regulated income stream = ideal income stream for life companies etc (matching income streams with policy liabilities).
d) BBI is viewed as in trouble and the market is viewed as down = buyers consider they will get the best price compared to that in a normal market.

$2.8B is the midpoint of the number I expect DBCT to realise. Higher than most expect, but realistic IMO. In % terms the difference between $2.6 and 2.8B is about 8%.
The wild card is will the purchaser negotiate a deferred settlement arrangement, say over 3 instalments. I would not be surprised if they did so.

BBI's business model required too much debt, and the days of cheap easy credit are long gone. Realising assets above book enables the removal of debt and the surplus above book can be used to pay down other debt. The de-leveraging of the balance sheet will strengthen the company resulting in an improvement in sp.

Cheers

 

[banska bystrica]

Whilst i like the fact that we have each and every one of our assets i think that we all agree that dbct is the crown jewel.

Well I for one do not agree that DBCT is the crown jewel. NGPL wins hands down. There is much more growth in NGPL with gas storage in the USA going through the roof. DBCT is the "sentimental" crown jewel because it was the first asset owned and it is in Australia. NGPL is financially the crown jewel by a long way.

 

[banska bystrica]

$2.8B is the midpoint of the number I expect DBCT to realise. Higher than most expect, but realistic IMO. In % terms the difference between $2.6 and 2.8B is about 8%.

I would consider $2.7Bn rock bottom and closer to $3Bn as a reasonable price.
If $1Bn of corporate debt is extinguished, PD Ports sells for 450GBP and the Euroports conditions precedent are met, then that should be all that is required regarding asset sales.
Then we should see an improving BBI price to around 25c which then opens up the door to restructure BEPPA.

 

[mikes]

foreget about any bbi scrip issue before sparcs conversion

foreget about any beppa restructure as

1. very cheap interest rate, which payment can be deferred on without any penalty to management or bbi.

2. beppa holders are eunochs, they do not have a vote and cant pass judgement on or remove the bbi directors.

3. i, am in no mood for giving up anything on my beppa , after copping losses on other stocks, and do not have unconditional confidence in babcock and brown's appointed management and directors ethics or credibility, and expect i am not alone.

The management, directors and their associates have previously overpaid for investments and taken out outrageous fees and charges amounting to my estimate a total of in excess of $2bn australian.

3. expect any restructure will require 75% vote of beppa holders to amend constitution, and do not see any vote getting up. ( precedent the directors previously tried out the sparcs holders in a vote and could not get it passed). dont see what they could offer of value for beppa holders to give anything up.

4. when beppa near maturity (2012) directors can offer a rollover like have offerered to sparcs, but if the rollover gives the directors the right to defer or suspend future coupons, or coupons are not guaranteed by an AAA business, the directors would be the biggest laughing stock on the asx.

 

[banska bystrica]

expect any restructure will require 75% vote of beppa holders to amend constitution, and do not see any vote getting up.

Difficult to say the vote would not get up until you see what the new offer/terms are.
Some sort of restructure proposal is a near certainty in my opinion.

BBI cannot afford to take the huge risk that BEPPA holders could in fact control the company in 2012 if they all convert.

 

[nathanblack]

The wild card is will the purchaser negotiate a deferred settlement arrangement, say over 3 instalments. I would not be surprised if they did so.

i agree this is on the cards. at the very least i would expect the sale price of DBCT to be at the lower end of expectations, then linked with performance payment for the next 3 years. eg $2.4bil cash now and a bonus of $200mil in 12months if a certain capacity is achieved, possibly followed up with another performance based payment in 24months time.

with the uncertainty of corus, and tesco not online yet, and the power station approved, i would expect similar sale structure for PD Ports. say $400mil upfront, if tesco impoves earnings like we expect a further bonus payment will be made. the final price will be fair withe the bonus payments made.

With DBCT a discount may occur if a quick settlement can be reached, or atleast condition precedence, followed by large $500mil downpayment to help takecare of sparcs. the other assets like europort which should settle before sparcs due is simply too small to make a difference.

my guess is dbct wont get us the cash in time, but if the deal is rock solid, with a deposit, and the numbers stack up, im sure the banks will give us a bridging facility to temporarily deal with sparcs. OZL got several extensions and bridging finance when it was obvious that minmetals would buy there assets.

if money was tight, i would consider offering sparcs holders the opportunity to convert up to a maximum of 50% of there holdings to cash, while the other 50% would convert to script. you would assume everyone would take the maximum cash on offer. this would eliminate 50% dilution and mean BBI need 50% less cash.

i think it would be acceptable to banks, sparcs, and bbi holders.

 

[nathanblack]

Difficult to say the vote would not get up until you see what the new offer/terms are.
Some sort of restructure proposal is a near certainty in my opinion.

BBI cannot afford to take the huge risk that BEPPA holders could in fact control the company in 2012 if they all convert.

the terms would need to be hugely stacked in BEPPA holders side. with interest payments on hold, i doubt i will care much if they offered a 2year extention til 2014 at an increased interest rate of 2%.

most people bought the stock as a speculative punt, knew divs were on hold, but expecting medium term oportunity to sell out with capital gain (say circa 30c) on market or keep til maturity and get $1odd(3years).

any offer/terms would need to increase the BEPPA price and provide on market sell oportunity, because few of us entered into this one long term. increasing the dividend rate on a deffered basis and extending maturity is unlikely to do so, infact i think price would suffer.

for me personally, the offer would at minimum need to return my initial outlay. so if the offer involved a cash payment the covered my entry cost + holding/opportunity cost then i would consider. perhaps some cash + BBI share i could sell. ofcourse if dividends get re-instated before any rollover attempt, everything changes.

 

[banska bystrica]

i agree this is on the cards. at the very least i would expect the sale price of DBCT to be at the lower end of expectations, then linked with performance payment for the next 3 years. eg $2.4bil cash now and a bonus of $200mil in 12months if a certain capacity is achieved, possibly followed up with another performance based payment in 24months time.

The income is regulated. It matters nought whether one ship turns up.
You might also be disappointed on the BEPPA arrangements too if your realistic hopes are what you posted. If you are in for a quick buck on BEPPA, you're in the wrong investment. The Directors will not be concerned with those who have entered BEPPA at current prices. An individual's entry price is irrelevant to the company.

 

[banska bystrica]

With DBCT a discount may occur if a quick settlement can be reached, or at least condition precedence, followed by large $500mil downpayment to help take care of sparcs.

Again, you are forgetting the bank sweep. Any proceeds from DBCT will be going to corporate debt and NZ Network Bonds. SPARCS don't rate equally. C'Mon guys, it's not rocket science.

 

[nathanblack]

The income is regulated. It matters nought whether one ship turns up.
You might also be disappointed on the BEPPA arrangements too if your realistic hopes are what you posted. If you are in for a quick buck on BEPPA, you're in the wrong investment. The Directors will not be concerned with those who have entered BEPPA at current prices. An individual's entry price is irrelevant to the company.

it may be regulated, but building/expanding a port and stating it can handle X throughput doesnt make it so. i would factor that in to any purchase agreement. if 85 capacity cant be delivered then no bonus payment. if it is shown that it can operate at 85 or even more then a final payment will be made.

i know the directors arent concerned with my entry price, but im pretty sure few people will accept a deal that sees NO return past 2012. NO dividend and flat growth. People bought this share expecting a return in 2012, if earlier great, but at worst in 2012.

unless they can get me some of my money back by 2012, then i will not be accepting any rollover. like i said a rollover by 12-24months to 2013/14 would be hugely detrimental to BEPPA trading price. and instead of concern over survival to 2012 we suddenly need BBI to survive longer.

May be good for BBI but not BEPPA.

 

[nathanblack]

Again, you are forgetting the bank sweep. Any proceeds from DBCT will be going to corporate debt and NZ Network Bonds. SPARCS don't rate equally. C'Mon guys, it's not rocket science.

not forgetting the sweep. i think a bank will lend BBI the required funds(for sparc), but the deal (dbct sale)would want to be rock solid, ie a huge deposit of say $500mil.

then when proceeds of euroports and dbct are settled, all asset level debt will be repaid and AS MUCH corporate debt as possible. this includes the bonds. we may be left with some corporate debt as a result of borrowing for sparcs, but sparcs will be eliminated.

thats why i propose only borrowing for a cash redemption of 50% sparcs, the rest in BBI script. share buybacks ans SPP work that way, ie the company elect how many shares or value they want to buy back. just send a letter to all sparcs holders offering conversion in november at $1. a maximum of 50% per holding can be taken as cash, the remainder must be taken as BBI script.

that offers the best of both worlds.
we get rid of sparcs...good
dilution of BBI...yes but not maximum amount
debt to repay sparcs...yes but only 50% not 100%, good outcome for sparcs holders to recieve some cash, requires banks to lend for sparcs but also improves balance sheet as 50% is converted in BBI(banks should be ok) and good for BBI to eliminate sparcs and not suffer total dilution and EPS.

 

[nathanblack]

You might also be disappointed on the BEPPA arrangements too if your realistic hopes are what you posted.

you think circa 30c for beppa is unrealistic short term? i would hope that post dbct sale and post sparcs(november) 30c is very realistic. after all it almost irrelevant how sparcs is dealt with to beppa. if BBI is diluted by 100% sparcs thats even better for beppa.

can i ask why you are in BEPPA if you think 30c is unrealistic in a 5-6month timeframe? and what do you consider realistic? surely your in it to make profit.

or is it the rollover/conversion terms you find unrealistic? i think if dividends aren't re-instated(which isnt going to happen near term), then any EARLY conversion will require a cash component. i would like atleast 10c cash before i accept any offer(this will return my initial outlay), especially if BEPPA are trading circa 30c at that time.

as far as rollover, i dont see much point(for BBI) in rolling over for only 12months, so im GUESSING it would be 24 months(til 2014). if that were the case then an increased dividend(which we arent even recieving) wont be enough. the Beppa price will go south(if it was at 30c at time of offer) if the mature date suddenly went from 2012 to 2014.

same applies if Beppa were circa 20c.

 

[nathanblack]

also most my thoughts are based on a restructure, meaning the elimination of BEPPA as aposed to a rollover of terms. any capital raising via a BEPPA style listed debt or BBI securities would requie beppa out the way.

BBI cant issue a higher ranking debt than Beppa. would you buy a new debt issue for $1/share that ranks equally or lower than beppa? NO

and no insto would buy a large placement of BBI at current prices or at 20c post rebound, knowing that Beppa ranks above them and that beppa could dilute there holdings.

so capital raising = beppa must go. not be postponed by 1 or 2 years.

the closer we get to 2012, the closer to $1 i expect.

 

[random]

Yes, the closer to 2012 beppa will surely be hitting the $1 mark - how can it not. Although i am not eliminating a proposal from management before that which could be accepted. I'm with nathanblack with a 30c price on beppa's after a dbct sale too - surely.


I would also be very surprised if beepa holders delayed redemption any longer than 2012 - just can't see it regardless of interest rate offered.

A point of clarification. I still think that dbct is the jewel at this time but certainly agree that NGPL is the potential jewel.

 

[nathanblack]

A point of clarification. I still think that dbct is the jewel at this time but certainly agree that NGPL is the potential jewel.

i guess it comes down to growth potential. DBCT has further expansion available, but its limited. so its basically capped.

NGPL has more growth potential. if they were both sold today, DBCT would probably just have an edge in price. But in a few years time perhaps NGPL will be worth more.

both great assets, and we needed to keep one to remain an ongoing business with potential to build around.

 

[random]

I would consider $2.7Bn rock bottom and closer to $3Bn as a reasonable price.
If $1Bn of corporate debt is extinguished, PD Ports sells for 450GBP and the Euroports conditions precedent are met, then that should be all that is required regarding asset sales.
Then we should see an improving BBI price to around 25c which then opens up the door to restructure BEPPA.

In your head banska bystrica what time frame is this to be fulfilled?
Does it have anything to do with your scenario of 35c and a 2:1 by any chance (being made in 2009/ 10) or is it a insiders insight or just a excursion into ........? - regarding the restructure that is.