APA - APA Group

[PinguPingu]

Re: APA - Australian Pipeline

Long in a gas pipeline company with the oil price in near complete collapse, like one thing has nothing to do with the other.

Long on a dividend momentum strategy, no fundamentals involved

 

[VSntchr]

Re: APA - Australian Pipeline

Reaper, I too have some LONG APA. I managed to get out on the open this morning for a cheeky price. But I am still awaiting the response from my broker as to what is happening with the entitlements. I hope they give me the institutional bookbuild price...the retail will take until late January to get paid out as far as I understand.

 

[skc]

Re: APA - Australian Pipeline

Reaper, I too have some LONG APA. I managed to get out on the open this morning for a cheeky price.

You are lucky! I got so distracted by all the Martin Place events and forgot to look at it. Would have bene a no brainer short on open.

But I am still awaiting the response from my broker as to what is happening with the entitlements. I hope they give me the institutional bookbuild price...the retail will take until late January to get paid out as far as I understand.

There's early acceptance on 19 Dec for retail holders...

 

[skc]

Re: APA - Australian Pipeline

Long in a gas pipeline company with the oil price in near complete collapse, like one thing has nothing to do with the other.

Largely non-correlated until the $hit really hits the fan... like customers going bankrupt.

I'm long on this via CFD's and have been allocated APA Group Nil-Paid rights...what on earth can I actually do with this?

Call your CFD provider and ask about the process and deadline for exercising your rights. The rights are not tradable in the market, but are renounceable. So if you do nothing make sure your provider pays you the clearing bookbuild price.

Best read the APA annoucement yourself.

 

[VSntchr]

Re: APA - Australian Pipeline

Call your CFD provider and ask about the process and deadline for exercising your rights. The rights are not tradable in the market, but are renounceable. So if you do nothing make sure your provider pays you the clearing bookbuild price.

So apparently the deadline was the 11th and now they are refusing to either allocate any additional units or to pay out the entitlement bookbuild price.
Pretty sh!tty about this and haven't given up....this is what I was told:
"In the event of entitlement offers our prime broker will assign a deadline for us to respond to the offers and if no actions are taken before the notification deadline, that means we're giving up the offer hence we wouldn't receive any cash or shares"

Nice to know that they didn't inform me of this deadline which is in advance to any deadline provided by the APA announcement. I figured taking no action would result in the bookbuild price....hmmmmmm. Another headache to deal with. Maybe its time to change broker!

 

[PinguPingu]

Re: APA - Australian Pipeline

So apparently the deadline was the 11th and now they are refusing to either allocate any additional units or to pay out the entitlement bookbuild price.
Pretty sh!tty about this and haven't given up....this is what I was told:
"In the event of entitlement offers our prime broker will assign a deadline for us to respond to the offers and if no actions are taken before the notification deadline, that means we're giving up the offer hence we wouldn't receive any cash or shares"

Nice to know that they didn't inform me of this deadline which is in advance to any deadline provided by the APA announcement. I figured taking no action would result in the bookbuild price....hmmmmmm. Another headache to deal with. Maybe its time to change broker!

Who are you with VS? I'm going to try and ring IG at lunch today and see what they say

 

[VSntchr]

Re: APA - Australian Pipeline

Who are you with VS? I'm going to try and ring IG at lunch today and see what they say

Have a few brokers, but this one is FPmarkets. They are cheap...but client money is a concern so I keep the balance low.
I fail to see how they can't pay the bookbuild when the announcement states that taking no action will result in the bookbuild price being payable. If I/we are not receiving the cash, somebody is!

 

[skyQuake]

Re: APA - Australian Pipeline

Pretty sure they mean 11th Jan. If not you can prob sue/complain to ombudsman.

A deadline of 11th Dec would be ridiculously onerous. 1 day after announcement, stock hasnt even settled yet!

 

[VSntchr]

Re: APA - Australian Pipeline

Pretty sure they mean 11th Jan. If not you can prob sue/complain to ombudsman.

A deadline of 11th Dec would be ridiculously onerous. 1 day after announcement, stock hasnt even settled yet!

Yeah, Ive got an email stating 9am on 11th December was the cutoff so no participation past this point. My fury is growing!

 

[PinguPingu]

Re: APA - Australian Pipeline

Just got an email from IG, you can apply to take up the rights, deadline 12/01/15, or do nothing and receive some value depending on the retail book build.

 

[bonkerrs]

Re: APA - Australian Pipeline

Just got an email from IG, you can apply to take up the rights, deadline 12/01/15, or do nothing and receive some value depending on the retail book build.

I assume you have the positions according to Nick Radge's Dividend Momentum strategy. I'm also holding long positions. I called Comsec CFD today and am now entitled to my allocation at $6.60 each but cannot exercise until after 9am 11th Jan.

Now for the newbie questions...

1. What is book build?
2. What are some likely scenarios based on similar entitlement offerings? Would the share price drop to around $6.60 on the 11th Jan because of the offering?

 

[ROE]

Re: APA - Australian Pipeline

book build is the process people bid to buy shares companies issue.

it is a discovery process for company to gage demand and supply for the shares
and how much people willing to pay for it.

Higher demand likely to lead to higher book build price and vice versa

The case of selling them to institution, the higher price the better for retail holder
as you are dilute a bit less and the book build price usually a reasonable floor price
for the stock as well so you unlikely to see it dropped too far from it.

 

[luutzu]

Re: APA - Australian Pipeline

This company is a complete Ponzi Scheme.

I hope I am wrong, well not really... but can someone tell me I am wrong?

I've looked at its past four years, compared it a similarly capital intensive business, and this APA is one big massive pile of Ponzi.

Will make my case soon.

 

[Smurf1976]

Re: APA - Australian Pipeline

I don't know if you are wrong or right but a ponzi scheme is illegal in Australia.

Personally, I'd be a bit cautious about suggesting a company is engaging in illegal activity on a public forum unless I had very firm evidence to that effect.

Just my thoughts.

 

[luutzu]

Re: APA - Australian Pipeline

I don't know if you are wrong or right but a ponzi scheme is illegal in Australia.

Personally, I'd be a bit cautious about suggesting a company is engaging in illegal activity on a public forum unless I had very firm evidence to that effect.

Just my thoughts.

Alright, I'll take that back. It would be hard to prove, and there is no need to name what APA is doing... But the effect is the same. Not a ponzi, management are honest, but the company itself cannot operate the way it is without borrowing more and more money AND raising new capital from shareholders.

Its current operating cash flow just cannot support both its dividends and its debt obligations. Dividends will have to go and slight less debt or equity will be needed - or sale of assets. To keep doing what it's doing, while may not be illegal, will send in the administrators.

 

[Value Collector]

Re: APA - Australian Pipeline

This company is a complete Ponzi Scheme.

I hope I am wrong, well not really... but can someone tell me I am wrong?

I've looked at its past four years, compared it a similarly capital intensive business, and this APA is one big massive pile of Ponzi.

Will make my case soon.

Alright, I'll take that back. It would be hard to prove, and there is no need to name what APA is doing... But the effect is the same. Not a ponzi, management are honest, but the company itself cannot operate the way it is without borrowing more and more money AND raising new capital from shareholders.

Its current operating cash flow just cannot support both its dividends and its debt obligations. Dividends will have to go and slight less debt or equity will be needed - or sale of assets. To keep doing what it's doing, while may not be illegal, will send in the administrators.

It's operating cash flow is higher than dividends, I can't see where the Ponzi is.

Also, it's capital ex, is mostly growth, only a small amount of its cap ex is stay in business cap ex, so its not as cap ex heavy as you might think.

 

[luutzu]

Re: APA - Australian Pipeline

It's operating cash flow is higher than dividends, I can't see where the Ponzi is.

Also, it's capital ex, is mostly growth, only a small amount of its cap ex is stay in business cap ex, so its not as cap ex heavy as you might think.

Stay in business capex was $50M, with new pipeline in Gladstone, may bring it to $70M.

Around $210M committed to growth capex (expanding its assets etc.). Its own report state it expects this to be $300 to $400M, but that's planned and so committed mean they can't get out of it is $210.

Dividends if at their "at least" 38cents is $423M.

Interests I guestimate at $484M, APA itself advise it'd be $500 to 510.

From its own EBITDA estimate of $1275 to $1310 (p.16 2015AR), excluding the stay in biz capex of $70 its cash position will be $52 to -$23M.

Add on top the $977M (there about) loan repayment [8.8 year average maturity on $8.6B loan]... and it will need to raise or borrow about $1100M or sell assets or cut divi and borrow less.



So if it can't convince lenders, it'll be a lot of pain.

That and having compare its past 4 years against Buffett's Burlington Northern rails... APA kinda suck.

 

[Value Collector]

Re: APA - Australian Pipeline

Dividends if at their "at least" 38cents is $423M.

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I have it at less than $270Million, and some of that will be retained due to the dividend reinvestment plan. (where are you getting $423M from?)

Interests I guestimate at $484M, APA itself advise it'd be $500 to 510.

The Interest that they pay is already deducted, it doesn't come out of the $550M of free cash flow.

Add on top the $977M (there about) loan repayment [8.8 year average maturity on $8.6B loan]... and it will need to raise or borrow about $1100M or sell assets or cut divi and borrow less.

They have undrawn debt facilities, to cover that any given years debt payment, and they will probably just keep rolling over debt.

I think debt will be a permanent part of the capital structure at apa, its one of those businesses that are really well suited to having bond holders as part of its capital base.

That and having compare its past 4 years against Buffett's Burlington Northern rails... APA kinda suck

Well I own Burlington Northern also, through my Berkshire holding.

But Buffet likes Gas piplines too , mid American and Berkshire hathaway energy own a few.

I don't see the suck, I don't mind holding gas pipelines.

 

[luutzu]

Re: APA - Australian Pipeline

I have it at less than $270Million, and some of that will be retained due to the dividend reinvestment plan. (where are you getting $423M from?)

They have 1,114,307,369 shares outstanding. At the 38 cents it works out to $423M
I think DRP has been cancelled.

See p.3 of latest dividend notice from them. Page 2 said they have DRP, but p.3 said it does not apply to this March divvy.

But true that they could simply switch it back and retain some cash. But also true that doing that simply mean they need to retain cash...

Personally I think they ought to switch it on but my guess is they want to keep up appearances.

The Interest that they pay is already deducted, it doesn't come out of the $550M of free cash flow.

I think your $550 refers to the Net Operating Cash flow. Which is true. APA adjusted/"normalised" it to $544M from memory... but yes that takes out the Interests and leave the DA and Taxes - it does not seem to be paying tax either, which I guess is a good thing ?


Add the $435M (at AUD/US of $0.77) EBITDA from the new WGP in Gladstone, add 5% organic growth and I had the old NetOp cash at $553M, and so totals $988M net cash in FY 2016. [could be slightly higher due to WGP linked to US rate and the AUD has been lower than the 77 cents.

Take away interests of $500M, dividends of $423, growth capex comitted of $210; stay in biz capex of around $70 and APA is in trouble.

They have undrawn debt facilities, to cover that any given years debt payment, and they will probably just keep rolling over debt.

I think debt will be a permanent part of the capital structure at apa, its one of those businesses that are really well suited to having bond holders as part of its capital base.

If APA could keep borrowing and keep raising capital and do some minor selling of certain "non-core" assets... yea it could keep up this business for a few more years longer. But given its size, monopoly and compeitive regulations will make it difficult to keep "expanding".

So I asked a simple question: Could APA survive as is if it can no longer borrow and raise cash?

No it cannot.

Well I own Burlington Northern also, through my Berkshire holding.

But Buffet likes Gas piplines too , mid American and Berkshire hathaway energy own a few.

I don't see the suck, I don't mind holding gas pipelines.

BNSF did borrow money, and is capital intensive, and yes it roll over its debt year on year.

But I've looked at its operations and BNSF does the borrowing and the operating in a way you'd expect a normal, profitable, well managed company does. APA isn't it.

For example, and maybe by the weekend I'll make a more detailed comparison... BNSF's net operating cash more than pay off its interests and its capex and its dividends. APA couldn't do it with theirs.

BNSF borrowed but does it to expand and to buy back their stock. It rarely need to sell its major assets - only does it once in the 12 years to 2009 prior to Buffett's takeover. APA on the other hand does not buy back its stock and borrow just to survive, and almost every year it has to either sell or forced to sell part of its assets.

Its latest purchase of WGP for AUD$5.8B led it to borrowed some $5.2B and raised another $1.8B. Note too its cap raising ended in late January while finalisation was 3rd June... It does that, and here I am guessing, to pay for its cash flow problem.

A good business does not need to raise cash to meet its obligations. Yes it shouldn't have a lazy balance sheet, and yes it should roll over its debt and use other people's money when the return on investment is higher etc. But look at WGP's purchase price and its EBITDA... works out about 7.7% return BEFORE interests and depreciation and taxes. Interests APA managed to bring down to 5.6% in its latest round...

That 2.1% above costs of borrowing is barely meeting inflation. Add to that depreciation expenses and some tax and that purchase is already under water. Add the loan repayment and it's just taking on a lot of risks for very little if any return.

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Its recent failed bid to take over Iona... QIC overbid it by some crazy amount right?
Just show APA is desperate to keep buying and growing so it could raise more money. Also show how desperate some of these operators are too.

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Haven't looked at other pipelines or Buffett's ones. But they're not all the same though. A business is only good if its operations could fund itself and have some left to pay dividends and some for expansion and organic growth. If APA stops borrowing, its organic growth will stop and it couldn't pay its bills - that's even after cancelling dividends.

But then if APA could manage to keep rolling over its debt and finding new opportunities - sure it'll work out fine. But all Ponzi works out fine until no more new investors or lender forking up the cash.

 

[Value Collector]

They have 1,114,307,369 shares outstanding. At the 38 cents it works out to $423M
I think DRP has been cancelled.

See p.3 of latest dividend notice from them. Page 2 said they have DRP, but p.3 said it does not apply to this March divvy.

But true that they could simply switch it back and retain some cash. But also true that doing that simply mean they need to retain cash...

Personally I think they ought to switch it on but my guess is they want to keep up appearances.

.

Oh yeah, I looked at the wrong thing, But either way, 38cents distribution is covered by operating cash flow of 55cents. So I can't see how is a problem.

I think your $550 refers to the Net Operating Cash flow. Which is true. APA adjusted/"normalised" it to $544M from memory... but yes that takes out the Interests and leave the DA and Taxes - it does not seem to be paying tax either, which I guess is a good thing ?

Take away interests of $500M, dividends of $423, growth capex comitted of $210; stay in biz capex of around $70 and APA is in trouble.

How are they in trouble, worst comes to worst they can finance their growth projects, they will earn above the cost of capital and deliver more operating cash flow.

The growth capex will only be a problem if the capital they deploy earns less than the interest on the loans, but the cost of capital is a factor regulators take into consideration when deciding how much apa can charge, also over time the fees will increase with inflation, the face value of the debt won't, so you have assets with very long lives, generating cash flow above the cost of the capital, cash flow that will increase with inflation over time, and that has good tax incentives.

If APA could keep borrowing and keep raising capital and do some minor selling of certain "non-core" assets... yea it could keep up this business for a few more years longer. But given its size, monopoly and compeitive regulations will make it difficult to keep "expanding".

I don't think it needs to sell anything, and growth projects in various fields will always pop up, I can't see a society that no longer needs infrastructure popping up.

So I asked a simple question: Could APA survive as is if it can no longer borrow and raise cash?

No it cannot

.

Yeah in can survive, it would just have to cut it's divvy, and use all the cash flow to pay off its debts, eg building share holders equity.

But I don't think that would happen, there's people that want to own bonds in senior positions and others that want to own equity, regulated infrastructure companies such as APA are good places for them to get together.

I don't see companies like APA the same as a company like Capilano where debt is a short term thing to be paid off rapidly, I see the bond etc as a permanent part of the capital structure.

BNSF did borrow money, and is capital intensive, and yes it roll over its debt year on year.

But I've looked at its operations and BNSF does the borrowing and the operating in a way you'd expect a normal, profitable, well managed company does. APA isn't it.

For example, and maybe by the weekend I'll make a more detailed comparison... BNSF's net operating cash more than pay off its interests and its capex and its dividends. APA couldn't do it with theirs.

Does BNSF pay a dividend? I haven't looked deeply at it, I assumed they would be like mid American and retain earnings.

But APA is in exactly the same position except they are spending a lot of growth and also paying a dividend. if over time their growth funding was 30% from retained and 70% from borrowed, I wouldn't have a problem with that.

BNSF borrowed but does it to expand and to buy back their stock. It rarely need to sell its major assets - only does it once in the 12 years to 2009 prior to Buffett's takeover. APA on the other hand does not buy back its stock and borrow just to survive, and almost every year it has to either sell or forced to sell part of its assets.

How are they borrowing to survive, they are borrowing to grow, take away the growth capex and they wouldn't need to borrow at all.

Its latest purchase of WGP for AUD$5.8B led it to borrowed some $5.2B and raised another $1.8B. Note too its cap raising ended in late January while finalisation was 3rd June... It does that, and here I am guessing, to pay for its cash flow problem.

A good business does not need to raise cash to meet its obligations. Yes it shouldn't have a lazy balance sheet, and yes it should roll over its debt and use other people's money when the return on investment is higher etc. But look at WGP's purchase price and its EBITDA... works out about 7.7% return BEFORE interests and depreciation and taxes. Interests APA managed to bring down to 5.6% in its latest round...
.

Yeah I wasn't impressed with the price, but I think it's part of a longer term plan to bring in cash from the timor sea via the NT, but as I said earlier, a 2.1% margin is not to bad, and it will improve over time as inflation increases their fees and cash flow.

That 2.1% above costs of borrowing is barely meeting inflation. Add to that depreciation expenses and some tax and that purchase is already under water. Add the loan repayment and it's just taking on a lot of risks for very little if any return

Inflation works in their favour, the face value of the debt will stay they same, but the earnings will rise with inflation, eg. in year 40 of the pipeline the earnings which have been increasing over the years along with inflation will be very large compared to the face value of the debt.

so in year one the share holders will be earning 7.7% on the equity they put into the deal + 2.1% on the funds the bond holders put into the deal, and both the 7.7% and 2.1% will rise over time, meaning it will be pretty good return on equity for the share holders.

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Its recent failed bid to take over Iona... QIC overbid it by some crazy amount right?
Just show APA is desperate to keep buying and growing so it could raise more money. Also show how desperate some of these operators are too.

Can you show that these growth assets aren't generating cash?
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A business is only good if its operations could fund itself and have some left to pay dividends and some for expansion and organic growth.

Yes, but you haven't shown that APA can't fund itself, your main concern seems to be that you think their dividends should be less, and they should be retaining cash to fund growth rather than borrowing