BBI - Babcock & Brown Infrastructure

[banska bystrica]

I also neglected to say that many instances of cornerstone investments ABOVE market price have been successfully implemented as long as the cornerstone investor has invested at significantly less than the ultimate NAV per share.

In my example, the "new" securityholders are paying 20c per BBI which is a whopping 41% discount to the 34c NAV fully diluted.

 

[persistentone]

A recapitalization plan.

This scenario requires two critical things to happen first:

1. Corporate debt must be reduced dramatically. (The only way that can happen short term is for DBCT to be sold for circa $2.7Bn).
2. A cornerstone investor with large pockets must be willing to inject new equity into BBI.

If the first happens, the company then can go about unlocking the value in BBI. This will not be of any interest to those who do not believe the book values of BBI are a true reflection of the real asset values because a restructure that is beneficial to ALL stake holders can only happen if the NAV right now is a large multiple of the current BBI security price.
On my calculations, the NAV after DBCT sells for $2.7Bn (An “if” at this stage) is circa $2Bn. This is NET of hybrid debt (SPARCS and BEPPA). Throw BEPPA and SPARCS back in (assuming they will be converted via my plan) and we have an NAV of circa $3Bn or roughly $1.15 per BBI security. Now we all know BBI is trading at roughly 7c. That is a massive discrepancy and hence the opportunity.

To recapitalize BBI, they can go down many avenues as other companies have done recently. The following is just one option:
Please be aware that this is all “back of envelope” stuff. People with far more corporate restructuring acumen than me can probably come up with something more sophisticated.

The problems I foresee here are:

1) A cornerstone investor will never agree to invest before BEPPA is resolved. The new investor would never sign up to being diluted by that post-investment. They will want BEPPA to convert first, and then they will want to massively dilute on top of the result.

2) The cornerstone investor will probably want to make 10% on his investment and then invest in a convertible note, so there's a good chance that our dividend might get sucked up by the new investor.

3) An investor in a convertible often shorts the common to hedge the investment, so that might in turn put a bar on the stock price for a while.

If this is the future for BEPPA, we really are in a hard place.

 

[nomore4s]

In my example, the "new" securityholders are paying 20c per BBI which is a whopping 41% discount to the 34c NAV fully diluted.

lol, I don't think too many investors are going to want to pay 20c in this sort of environment, especially when the stock is trading at 7c. 10c maybe but I doubt it, considering the issues BBI has.

Some of your posts border on fantasy imo.

The problems I foresee here are:

1) A cornerstone investor will never agree to invest before BEPPA is resolved. The new investor would never sign up to being diluted by that post-investment. They will want BEPPA to convert first, and then they will want to massively dilute on top of the result.

2) The cornerstone investor will probably want to make 10% on his investment and then invest in a convertible note, so there's a good chance that our dividend might get sucked up by the new investor.

3) An investor in a convertible often shorts the common to hedge the investment, so that might in turn put a bar on the stock price for a while.

If this is the future for BEPPA, we really are in a hard place.

This is a more realistic post.

 

[persistentone]

lol, I don't think too many investors are going to want to pay 20c in this sort of environment, especially when the stock is trading at 7c. 10c maybe but I doubt it, considering the issues BBI has.

Some of your posts border on fantasy imo.

The theory behind is post his sound. If the BBI stock doesn't face dilution, there is no reason to believe that a much higher share price cannot be realized.

My only point is that the cornerstone investor will want to make sure BEPPA is put away *before* it steps up to invest, and that is likely to happen in a way that is highly disadvantageous to BEPPA and BBI.

So I find BB's 20 cents very believable. I just don't think the BEPPA can game their share of the result so easily.

 

[banska bystrica]

Bought another 300,000 BEPPA this morning. If the total writedowns are less than $1Bn, that is about $500M better than my worst case scenario and one would think the Jan 1 - Jun 30 period would have been the worst of the GFC.

NAV would appear to be circa 54c now.

 

[skyQuake]

Do you have a guess on when the writedowns will be announced?

Just seems to me that you can find a better place to park your capital in the meantime.

 

[hardyakka]

NAV would appear to be circa 54c now.

What the impairment announcement is telling me is that:

• BBI assets have been written down to a realisable value in the worst econimic conditions in a long while. So long as BBI is able to "hold on" this charge will be written back as economic conditions improve.
• I note that there has been no marking to market of assets such as DBCT and NGPL. In the case of the former that would be a "write-up" of circa $700M (assuming a sale price of $2.7b) alone.

So a chunk of he BEPPA "safety cushion" has been eroded (in fact $400M than I would have liked) but IMO I am comfortable and see only upside for BEPPA.

As has been pointed out bt many persons the risk is to BBI holders via dilution.

On another issue there has been some interesting commentary on recapitalisation, these have revolved primarily around debt/equity security considerations.

As a BEPPA only holder as part of any recapitalisation proposal I would seriously consider accepting options at a discounted strike price exercisable several years into the future as part of a BEPPA value consideration.

Cheers

 

[banska bystrica]

Let's not forget that the new NAV of 54c after today's announcement) includes a book value of $1.8Bn for DBCT.
A sale at $2.7Bn adds back $900M to the NAV which would mean a new post DBCT sale NAV of 88c.

BBI is not "safe" yet, but sell DBCT for anything above $2.4Bn and the future looks much brighter.
If that sale is executed, BEPPA are ridiculously cheap (in my opinion) at anything under 30c in the dollar and probably still cheap at 50c. I think the strength of BEPPA in the market is a reflection of all the above. A keen buyer seems ravenous for any BEPPA when volume is offered.

JB Were have been a big net BEPPA buyer over the last few weeks. Do they see what I see or do they have another scenario in mind?
I thank the sellers under 14c this morning for their generosity.

 

[fureien]

Do you have a guess on when the writedowns will be announced?

Just seems to me that you can find a better place to park your capital in the meantime.

and where would that be?

JB Were have been a big net BEPPA buyer over the last few weeks. Do they see what I see or do they have another scenario in mind?
I thank the sellers under 14c this morning for their generosity.

who or what is JB were?
are u still holding the parcel u bought this morning? theres a huge seller at 16.5c atm is that u lol

 

[banska bystrica]

"JB Were" is a stockbroker. Thought that was well known.

Of course I am still holding the parcel I bought this morning. The seller at 16.5c is hardly a big seller. He put on 400,000 to sell which is $66,000. Hardly what I would call a big sell order.

 

[skyQuake]

Park my money almost anywhere else.

Not saying this won't play out, but imo you can jump in when it starts to turn rather than hold and pray. I am fairly sure BB is spot on, but what timeframe?

 

[jacobkball]

I'm going to jump in with my first post on these forums, with a thank you to BB for the detailed insights and analysis sprinkled throughout the past 100 pages of this thread!!

I stepped in and got my feet wet when BEPPA were 10.5c, so I'm pleased with the way it's looking at the moment.

Skyquake - your graph is for BBI - if you did a similar graph for BEPPA, it would tell a very different story. Mine, for example, are up 55% as of today. Pretty good place to put my money, for the time being.

I'm going to ride this BEPPA train until I can't resist selling, and then will be moving all my funds into Silver. If we're looking at 10 times our money back for BEPPA, eg 10c for $1 in 2012, I think it's going to be many more multiples of that for physical silver, ie bullion / coins.

If anyone cares to look at graphs of US mortgage resets becoming due over the next couple of years, you'll see that there's a huge spike in Option Adjustable and Alt-A resets in 2010 / 2011. This could potentially make last year's Sub Prime crisis look small - so there's very uncertain times ahead, particularly with inflation / hyper-inflation a real possibility.

Anyway, thanks to everyone posting in this thread - it's been very enlightening!

 

[banska bystrica]

Welcome jacobkball,
I am extremely bullish on gold for the next 3 years. If you are bullish on silver, would it not make more sense to buy listed silver producers? Interested in your thoughts.

 

[random]

Hi jacobkball,
yeh, you don't have to convince me either.
I bought gold bullion and silver 3 years ago and they have done well and will do much better yet.

My investments are in a very narrow range at the moment, beppa, about 5 other shares and gold bullion and silver bars.

Personally i prefer the physical stuff to metal shares bb.

Added a few more beppa's yesterday simply because i feel time is running out.
Not to say they won't drop a bit again though.

 

[jacobkball]

Hi BB and random,

I think there's potentially good opportunities with stocks in silver mining etc, for sure. As the availability of silver decreases and the price soars, these stocks are most likely to follow.

The issue with buying them is that they're still paper. If, as mentioned before, we enter a hyper-inflationary period, the current fiat currencies could become worthless, as they're all backed by the US dollar. Those shares could literally become worthless.

You'll still, however, be able to use both physical gold and silver as money, regardless of what's happened to the currencies. That's why I'm very bullish on silver bullion. I'm also looking at buying some coins as well.

It's much cheaper for me to enter in on (around $17.50 per ounce AUD) and has the capability to outperform gold, giving me greater leverage. Why? Because silver supplies are actually being consumed, by manufacturing etc, as well as being hoarded as a store of value. Silver supply is not exceeding demand - that is, above-ground stocks are being depleted.

The traditional historical ratio between silver and gold is 16 - 1, that is, 16 ounces of silver to purchase 1 ounce of gold. The current ratio today is 65 - 1!! Either silver is grossly undervalued, or gold is grossly overvalued - you work out which one it is....

I'd be most interested to hear others thoughts on it, although I'll have to pop my head into the silver threads on this forum as well.

Cheers,
Jacob

 

[Zarate]

I keep hearing we will receive $1 for beppa in 2012. But does that ignore the massive dilution that it will have on bbi on conversion?

As optimistic as people here are, I do not see bbi being worth more than 50c in 2011 (which anyway is a great result). Even if it is 50c - assuming we get $1 of bbi's for beppa, that means we get 2 bbi shares so add 1.4bn shares to the 2.6bn outstanding. The price of bbi would then become approximately (50c*2.6bn)/(1.4bn+2.6bn) = 32.5c. so beppa holders get 65c.

at 6.8c it would be about 15bbi shares. (6.8c*2.6bn)/(10.5bn+2.6bn) = 1.3c. So beppa holders get 19.5c.

So based on the current shareprice of bbi, beppa is still underpriced.

Opinions?

 

[random]

Zarate,
It takes a little time but it is well worth the time and effort to go back to earlier posts and read up on this.
This issue is well addressed and posts should answer your querry in full.

 

[Tysonboss1]

The issue with buying them is that they're still paper. If, as mentioned before, we enter a hyper-inflationary period, the current fiat currencies could become worthless, as they're all backed by the US dollar. Those shares could literally become worthless.

Inflation of paper currency shouldn't devalue assets, Assets such as as shares and property would rise with inflation simply because there is more paper currency floating around to purchase such items with.

 

[skyQuake]

Inflation of paper currency shouldn't devalue assets, Assets such as as shares and property would rise with inflation simply because there is more paper currency floating around to purchase such items with.

But u'll lose around 1/2 of it due to Tax cause it 'appreciated'...
1/4 if you hold it over a year : D

 

[Tysonboss1]

But u'll lose around 1/2 of it due to Tax cause it 'appreciated'...
1/4 if you hold it over a year : D

But it also produces cashflow, which a bar of gold does not, and you can't claim depreciation on a bar of gold

Also isn't any capital gain from selling a bar of gold also subject to tax.