BBI - Babcock & Brown Infrastructure

mark_au said:

well that's the question, do i trade em and hope that they drop, or hang on for the longer term. My initial plan was to hold them for the long term.

Whats the odds they pull back allowing us to buy in again at a lower rate????

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i can't provide financial advice

but look back over this thread, in particular discussions of "pump and dump". Lets just say i read nothing into this spike other than someone is buying, they have probably already sold out, and the market just hasnt realised yet.

i see real weakness in the market depth, but ofcourse we dont know who is waiting off screen to place orders.

yest i bought $100k at avg 14.5, got out of all at tick over 16c.(still stuck with a few, waiting for 17c)

i think 16c is overpriced, even if dbct news is leaking, because why isnt bbi following? i would expect a retrace to 13.5c by early next week.

so the real question is, are you holdings large enough to make it worthwhile.

mark_au said:

Whats the odds they pull back allowing us to buy in again at a lower rate????

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There is a good chance this rise could just be a flash in the pan, But you know it might not be.

I am not game enough to try and pick it, I am holding on for the big win.

I don't think anybody has any idea on this one at the moment,

nathanblack said:

i think 16c is overpriced, even if dbct news is leaking, because why isnt bbi following?

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Sparcs concerns could be capping BBI, the threat of diloution is real, Having experianced massive dilouion of one of my other holdings recently I can tell you it is not fun.

the recent announcements have not be overly exciting but are still good news for beppa, even the sparcs conversion is good news for beppa.

But the news has not been good enough to out weigh the risk of the sparcs conversion in regards to BBI.

nathanblack said:

i can't provide financial advice

but look back over this thread, in particular discussions of "pump and dump". Lets just say i read nothing into this spike other than someone is buying, they have probably already sold out, and the market just hasnt realised yet.

i see real weakness in the market depth, but ofcourse we dont know who is waiting off screen to place orders.

yest i bought $100k at avg 14.5, got out of all at tick over 16c.(still stuck with a few, waiting for 17c)

i think 16c is overpriced, even if dbct news is leaking, because why isnt bbi following? i would expect a retrace to 13.5c by early next week.

so the real question is, are you holdings large enough to make it worthwhile.

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Yea appreciate all that, there seems to be no real logic or at least none that we are privy to ;-)

If it was a general rise, i also would have expected bbi to rise in step, maintaining the several cents gap as per "usual".
Whats "usual" these days anyhow LOL

Tysonboss1 said:

Sparcs concerns could be capping BBI, the threat of diloution is real, Having experianced massive dilouion of one of my other holdings recently I can tell you it is not fun.

the recent announcements have not be overly exciting but are still good news for beppa, even the sparcs conversion is good news for beppa.

But the news has not been good enough to out weigh the risk of the sparcs conversion in regards to BBI.

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the BBI price is made up of risk and fundamentals. so we must ask why is it so low again?

if its low due to risk, then beppa should be low too. BBI fails=beppa fails.

so my logic is a change in fundamentals. whats that change? sparcs dilution. that dilution will water down NAV and EPS.

does that affect Beppa? if so is it negative or positive?
sparcs gone...good for beppa
lower nav...good for beppa. if nav per BBI is 75c post sparcs, you can either buy BBI at 7c and get 75c of nav, or you can buy beppa at 16c and get $1.

so BBI is less desirable than before, but BEPPA is overpriced IMHO. for 14c you can get 2BBI with exposure to $1.50 NAV. good asset sales will close gap on sp and nav.

so why the discrepency? either Beppa is overpriced OR BBI are factoring in further dilution(perhaps beppa conversion).

mark_au said:

Yea appreciate all that, there seems to be no real logic or at least none that we are privy to ;-)

If it was a general rise, i also would have expected bbi to rise in step, maintaining the several cents gap as per "usual".
Whats "usual" these days anyhow LOL

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i dont think the gap is in terms of cents any more. its a percentage thing. i think the base prices are BBI 6c, BEPPA 12c. from that base a rise in one SHOULD happen to the other in percent terms,

eg BBI recently went from 6c to 7.2c (20%)
beppa at that time was 12c +20% (14.4c)

so the gap in percent remains 200% at all times, but rises in terms of cents. when they differ by significantly more there could be an oportunity to switch between the 2.

the above assumption will be revised with significant announcements, because some news is better for beppa relative to bbi (even bad news can be less bad).

cheers, and goodluck with your trading.

haha nathan, wow $100k, i was considering doing a short trade on it too sicne the trend is upwards but way too risky for me.

did u buy it all up at once or incrementially. and sell the same way? $100k is alot lol, market mustve interpreted as someone with information snapping it up, thats probably why its 16cents today lol.


in other news bbi and beppa seem like parting friends. heading opposite directions

even with bbi at 7 cents atm, i think it will probably dip lower. because it did that last time. theres too many sellers against buyers. I have a buy order in at 6.6 cents

fureien said:

haha nathan, wow $100k, i was considering doing a short trade on it too sicne the trend is upwards but way too risky for me.

did u buy it all up at once or incrementially. and sell the same way? $100k is alot lol, market mustve interpreted as someone with information snapping it up, thats probably why its 16cents today lol.


in other news bbi and beppa seem like parting friends. heading opposite directions

even with bbi at 7 cents atm, i think it will probably dip lower. because it did that last time. theres too many sellers against buyers. I have a buy order in at 6.6 cents

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i bought and sold in smaller parcels, to keep momentum. if it stalls buy to keep things moving. i wont be trying it again. real heart stopper. happy to just hold my usual now.

looking at volumes i suspect theres another buyer out there but could be wrong. i know which trades i account for.

volumes have totally dried up, really needs someone to feed the market right now. i think its easy to see how people read something into nothing with some moves. 14.5c close my guess

nathanblack said:

volumes have totally dried up, really needs someone to feed the market right now. i think its easy to see how people read something into nothing with some moves. 14.5c close my guess

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yeah I have been tossing up selling some this afternoon, but I wouldn't be able to move enough to make it worth while without lowering the price to much, I was thinking about selling off 200k units.

I have sitting at the computer for to long with my finger hovering over the sell button, Maybe it's best a just shut down the computer for the day.

Tysonboss1 said:

Maybe it's best a just shut down the computer for the day.

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yep, commsec is off till tommorrow. I am going to crack a VB and do some real work , we will see what happens tomorrow.

Tysonboss1 said:

yep, commsec is off till tommorrow. I am going to crack a VB and do some real work , we will see what happens tomorrow.

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enjoy the beer mate. 16c level is ok, but maybe your after more. yes tomorow will be interesting, if volumes stay thiss low.

cheers

I think pump and dump is not possible for us small fries. do the maths? even rough calculations on say $100k and 10% gains.

Less CGT, Less Brokerage. The profit versus the risk is too small in hindsight. The trade can always go against you and you've lost 10%, especially if your capital is otherwise committed and you can't sit and hold approach.

Maybe with deeper pockets it would be more rewarding, but im not game.

You live and you learn i guess.

I was doing the sums as you wrote and wondering if $5k was really worth the effort. It would be ok if you could do it every week and have no losses I suppose, but I just don't have that trader gene myself. In any case I'm glad your experiment worked out for you.

I'm sitting on my beppa.

fuzzie said:

I was doing the sums as you wrote and wondering if $5k was really worth the effort. It would be ok if you could do it every week and have no losses I suppose, but I just don't have that trader gene myself. In any case I'm glad your experiment worked out for you.

I'm sitting on my beppa.

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LOL

Hasnt quite worked, still stuck with $10k worth. And WAS NOT worth the stress.

I would hypothesise that increasing bank to say $200k, would have similar consequences. The average buy price will increase more, then as you try to sell down you will probably get stuck with an even larger parcel.

Grade : D-

My timeline to sell all my beppa's is basically linear. start with a 20c value now and end with $1 in 3years. Rise of 80c in 3years, 40c in 1.5 years, 20c in 9months.

So in 9months i think a "fair" value would be 20+20 = 40c. obviously certain news is likely to fasten this move or slow it.

if beppa is significantly over that line, i will sell down, if its under i will buy.

not the best logic, but its part of my guestimates.

I kind of wish i hadnt booked my Philippines holiday for August, with the FY results and DBCT it could be a volatile time.

The province where i stay in Cabanatuan City is really remote and internet access is difficult without a trike ride into the city. But I've left some instructions for my brother to execute.

My brother will update me on the mornings action, atleast theres only a 3hour time difference if things turn ugly.

Anyway im off now for 2weeks, need to pack, and get to the aiport by 10pm. goodluck with your trades whatever they are.

nathanblack said:

i think 16c is overpriced, even if dbct news is leaking, because why isnt bbi following?

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I don't know if this is feasible, but they could go in opposite directions if there is a leak and somehow BBI securities are built into the purchase price.

Could BBI structure the deal so that instead of selling 100% of DBCT, they sell only 49% but also include a certain amount of new BBI shares (say 30% of BBI after the issue)?

Pure speculation on my behalf.

Hi again all, I have been up to my neck in it and just caught up on the thread.

A few observations have crossed my mind:

a) I see BBi and BEPPA continuing to move in opposite directions. This is because BBI carries all of the risk of dilution, writeoffs etc.
b) BEPPA is unaffected by writeoffs etc to the sum of the existing net assets plus any amounts not recognised in that number, such as the DBCT profit on sale. Also as many have pointed out SPARCS will be gone, which is a positive for BEPPA.
c) There has been talk of restructure and I agree that it is necessary. But if you want to take the hard view, why would BEPPA restructure. In 2012, if the prices remain at these levels, BEPPA will dilute BBI holders out of existence. Thus ending up with zero BEPPA corporate debt and a heap of new shareholders. So if a suitable offer is not made to BEPPA holders they will just about end up in owning the vast majority of net assets via conversion to ordinaries anyway.
d) Following on from the point above, if a BEPPA restructure offer is not reasonably enticing it will simply not get through, especially considering it needs a 75% majority and related parties cannot vote.
e) What everyone forgets here is that DBCT is a significant asset in the BBI stable, any transaction would therefore be condistional upon BBI holders approval.
f) I do not think it legitimate to say 2 BBI are comparable value to 1 BEPPA, except maybe in current market price terms. This is because of the the significant risks associated with BBI.
g) PD Ports etc, I would like to see them retained and maybe realised a few years down the track when a decent price may be obtained.

We have already started to see the availability of BEPPA in the market dry up significantly compared to a few months ago. IMO the recent markets movements have caused many investors to re-examine the market critically. I think investors have started doing their own analysis and are seeing where there is value. those of us who got in early and took the greater risks are IMO soon to receive a greater reward.

In closing I have seen many comments along the lines of "BBI/BEPPA must be a dog because look at their price and the market is always right". Well I agree that the market is always right as it will self correct any mis-pricing etc eventually. the operative word is "eventually", the time gap betweenoccurrence of the mis-pricing and the market correction is what provides the opportunity. I believe the correction for BBi will be complete upon announcement of DBCT sale and change of name.

Cheers

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.

After DBCT sells for $2.7Bn (a big IF I know but bear with me), corporate debt will be reduced to the NGPL amount maturing in June 2013. That equates to US$250M or roughly $300M AUD.
One would suggest that the BBI price would realistically be re-rated back to the 15c-20c mark. Note, it doesn’t really require this to happen for the restructure to work. More important is the willingness of a cornerstone investor and/or institutions to recapitalize BBI with circa $500M cash and be prepared to accept BBI securities at circa 20c (even though the market price may be a tad lower). For this to happen, the new investors must be:
1. confident that the NAV is accurate (give or take 20%).
2. sure the company is “clean”. That means management of the assets must be internalized and all hybrid securities are converted to equity.

If that happens, the next step is conversion.
Currently there are 2.6Bn BBI securities. The new cornerstone investor would be issued 2.5Bn BBI’s at 20c and contribute $500M cash.
The SPARCS and BEPPA would be converted at the same price. 20c. That means SPARCS and BEPPA holders receive 5 for 1. That adds an additional 4.5Bn BBI’s to the register. (120M SPARCS plus 780M BEPPA = 900M bits of paper).
Throw in a 1:2 rights issue for existing BBI security holders and you have another 1.3Bn BBI’s issued and raise an additional $260M. Use that and part of the $500M from the cornerstone investor to clear the NGPL corporate debt.
Where does that leave BBI?
Corporate debt free
Zero hybrid debt
All assets kept except DBCT (DBCT being the catalyst for this restructure)
Number if securities now on issue: 10.9Bn BBI
Working capital of $460M
EBITDA of remaining assets: Circa $900M
Free cash flow generated per annum: $200M
Interest savings of circa $150M per annum (No corporate debt, no hybrid debt).
The NAV would be $3.76Bn ($3Bn prior to this plus $760M new cash)
NAV per BBI security: 34c.

With no corporate debt, management internalized and a change of company name, the market would more than likely price BBI close to NAV (circa 34c).
All free cash could be paid in distributions equating to roughly 2c per BBI. New investors at 20c can then expect a 10% yield on their investment at 20c per BBI.
OK, older investors who paid circa $1+ per BBI take a big haircut although they do have the opportunity to lower their average via the rights issue or on market.

Feel free to pick it to pieces.

Recapitalisations tend to be at a discount to the share price, not a premium. Sometimes those discounts are very substantial.