BBI - Babcock & Brown Infrastructure

[BearCuban12]

Dalrymple Bay Coal Terminal (DBCT) is intangible. It's a 99 year leasehold asset.
I reckon it might just be worth a bit more than a commercial property.
EV of $2.4 BILLION for DBCT. Not a bad intangible.

Where do you get the EV of $ 2.4 BIL from?

I cannot find its value in the reports.

What is a realistic sale price for 100%?

 

[banska bystrica]

DBCT is in the books at $1.6 Billion. They were offered $2.8 Billion early 2008 (should have taken it.lol)
I'm assuming a 400M haircut from last year. BBI will only sell if the price is right. $2.4B would be about right I think. That would free up $400M to pay corporate debt if they sold a 50% share.

PS. Will not be posting over the road whilst the quality is garbage and also dargie rabbiting on about death spirals.

 

[drsmith]

$1.6b will only cover the debt associated with DBCT so it will indeed be interesting to see what BBI actually gets for it.

The following may also be of interest.

http://steelguru.com/news/index/200...ship_loadings_reduced_to_half_in_January.html

 

[banska bystrica]

You have done your homework so you would be aware lower shipping visits does not affect BBI's revenue one iota. They have "take or pay" contracts which is another reason the ports users (BHP, Xstrata, Macarthur Coal)would be keen to buy it.

 

[BearCuban12]

DBCT is in the books at $1.6 Billion. They were offered $2.8 Billion early 2008 (should have taken it.lol)
I'm assuming a 400M haircut from last year. BBI will only sell if the price is right. $2.4B would be about right I think. That would free up $400M to pay corporate debt if they sold a 50% share.

PS. Will not be posting over the road whilst the quality is garbage and also dargie rabbiting on about death spirals.

Have they not developed DBCT to increase capacity since the last offer?

Is there a chance that the potenital bidders for DBCT will band together and pinch it for a song?


The Powerco sale for me was an eye opener about leverage (like a robber with a knife has leverage over their victim). With the deadline the offers of DBCT being so close to having to fund the SPARCS payout, there is a chance that a potential bidder could pull a QIC last minute.


It would be good to have you back at HC as well as here. If you keep emotion out of it and answer the serious concerns that everyone has, then BBI should go back to being the best read thread on HC. For all Dargies foibles, he is able to give the more positive BBI supporters a different view. Think of him as a (sometimes) rational devils advocate. Hope you do decide to return. Todays talk of death spirals were a little tongue in cheek.

cheers

 

[drsmith]

You have done your homework so you would be aware lower shipping visits does not affect BBI's revenue one iota. They have "take or pay" contracts which is another reason the ports users (BHP, Xstrata, Macarthur Coal)would be keen to buy it.

I saw the graphic on page 23 of BBI's investor pack showing current contracted demand out to 2020 but note that it comes with the following caveat,

"Current Contracted Demand" assumes current contracts at current levels with full extension of evergreen expiry date option.

That statement, vague as it is, suggests to me that some of the current contracted demand indicated in the graphic is not locked in but optional.

 

[random]

Can i just point out also that DBCT Management proposed a rate increase last year on volumes of coal moving through the terminal.
To the best of my knowledge these are now in place.

The rates are:
1) From $2.12 per tonne to $2.38 on 1 January 2009.
2) $2.42 per tonne on 1 April 2009

If these prices were built in to your models already i do apologise.
Perhaps some annalysts may not be aware.

 

[banska bystrica]

With the deadline the offers of DBCT being so close to having to fund the SPARCS payout, there is a chance that a potential bidder could pull a QIC last minute.

BearCuban,
SPARCS is not an issue. They already have the cash to take care of that. Look at the cash on hand at Dec 31, 2008. $300M. SPARCS is not an issue....only in the mind of dargie. People are jumping at shadows.

 

[hardyakka]

Hardyakka, instead of making assumptions and straw man arguments, I suggest you actually read my posts rather than reacting on emotion. Firstly you are completely wrong with respect to the kinds of companies I have in my portfolio.

Secondly it is NOT my belief BBI will be liquidated, I have no view one way or the other, I simply don't know. My point is that at 4.5c the stockmarket is pricing it with a stong possibility that it is going out of business.

Thirdly, I absolutely reject the Efficient Market Hypothesis, the stock market is wrong at least as much as it is right, my view is that the stock market is pricing the stock as though there is a good chance the company may not be around in 12 months time. Again I don't necessarily agree with that view. I have enough humility to say that I honestly don't know.

My main point all along is that this is a mediocre business that generates mediocre returns, a point that none of the BBI supporters have been able to refute, because it is indisputable.

I will concede that if BB's forecast profits for FY10 and FY11 are realized then the stock is most probably worth more than 4.5c, but forecasts of earnings 18 months out, are pie in the sky stuff in the current environment.

Dhukka,

The points made are factual and not based upon "strawman" arguments, you only need read the financials to verify that. However I do withdraw the assumption regarding the content of your portfolio.

The issues of market inefficiency creating mispricing opportunities clearly stands, IMO BBI is a prime example. Regarding the income side, in the current BBI situation this is a minor issue. For BEPPA holders there is the advantage of accumulation and priority of payment only.

NB/Pls dont use caps

Cheers

 

[dhukka]

Dhukka,

The points made are factual and not based upon "strawman" arguments, you only need read the financials to verify that. However I do withdraw the assumption regarding the content of your portfolio.

The issues of market inefficiency creating mispricing opportunities clearly stands, IMO BBI is a prime example. Regarding the income side, in the current BBI situation this is a minor issue. For BEPPA holders there is the advantage of accumulation and priority of payment only.

NB/Pls dont use caps

Cheers

I don't like using caps, it's only when you come across people who can't understand the written word that it becomes necessary. The straw man arguments you created are: 1) I believe the company is going out of business, you wrote:

b) My recollection of the audit report was that there was no going concern qualification, hence the auditors do not seem to concur with your liquidation view.

This is a classic straw man argument, you created one that didn't exist, I have never said that I thought the company is going to be liquidated.

2) Illogical conclusions drawn by you:

c) Your comment that the market is pricing BBI for liquidation has a fundamental flaw. It assumes that the market is 100% right all of the time.

Why does the comment that the market is pricing the company for liquidation imply that I think the market is always right? If I make the observation that 9 out of 10 people in the street are carrying umbrellas because they think it is going to rain, does that mean I believe them? The market was pricing ABS for success 2 years ago and I was very vocal on this forum that it was headed for a tough time. Clearly I don't believe the market is always right.

To summarise your view of liquidation is inconsistent with the financials and markets are imperfect, especially in volatile times. This combined with the human factors creates abnormal mispricing scenarios of which BBI is one.

Again a completely erroneous conclusion and straw man argument because I do not believe the company is going to be liquidated, I simply don't know.

The only facts or fact in this case, in your whole post is that operating cashflow was positive for the half.

 

[hardyakka]

Dhukka,

I do not think it contributes to the BBI debate by continuing this exchange. Regarding the content of my original post that I stand by, however if you have taken personally, then they were not intended as such.

Cheers

 

[BearCuban12]

Banksa,
I am a BEPPA and BBI holder and instead of watching the DJIA fall this evening, have been reading he old BEPPA threads, and am struggling to see how it is possible that BEPPA holders do not get paid andything

Once SPARCS is paid off then BEPPA holders are next in line.

CREDITORS
SPARCS ($300,000,000)
BEPPA (700,000,000)
BBI Ordinary (2,400,000,000)

So if the company went bust tomorrow with a NTA of 1.00 per share

after CREDITORS, SPARCS, and the administrators are paid, there must be at least 30c per share left over?

What are your thoughts on this?

I guess the timeline would be around 5 years to see anything.

If you had to play devils advocate, is there anyway on earth that BEPPA holders will not see any money?

What about if the company was nationalised by the Government? Is that a possible scenario?


Also, I note on the BEPPA T+C's that BBI are able to issue BONDS that have an equal or lesser priority than BEPPA. Would they consider raising capital by issuing other BONDS equal to BEPPA, and if so, what are the ramifications for BEPPA and BBI holders?

 

[banska bystrica]

If you had to play devils advocate, is there anyway on earth that BEPPA holders will not see any money?

BEPPA would most probably be left with nothing in a windup scenario as you would not get positive NTA in a firesale.
However, what evidence is there to even suggest BBI are going into administration? Forget about the share price. It has nothing to do with whether BBI are viable or not. The share price is at 4c because of panic, a flee to cash by investors, and two large institutional brokers exiting their clients. We will probably see a new low of under 2.4c before it starts to rise.

I'm in the process of getting a few investors together and approaching the instos with a view to buying all their BEPPAs in one crossing at 2c. I'm meeting with interested parties at 10.00am Brisbane time.

 

[alphaman]

To get any chance of investor support, any new debt would have to rank above BEPPA, not equal or below.

As to nationalisaiton, governments might bail out companies that are considered too important to fail, but they don't like to bail out shareholders or even creditors.

Typically you would see existing shareholders wiped out (or hopelessly diluted, look at Citi), creditors turned shareholders. Essentially new investors rank on top, existing investors move down (or out). So no, nationalisation will not help.

 

[investorpaul]

BEPPA would most probably be left with nothing in a windup scenario as you would not get positive NTA in a firesale.
However, what evidence is there to even suggest BBI are going into administration? Forget about the share price. It has nothing to do with whether BBI are viable or not. The share price is at 4c because of panic, a flee to cash by investors, and two large institutional brokers exiting their clients. We will probably see a new low of under 2.4c before it starts to rise.

I'm in the process of getting a few investors together and approaching the instos with a view to buying all their BEPPAs in one crossing at 2c. I'm meeting with interested parties at 10.00am Brisbane time.

Interesting, you will have to let us know how it goes?

How many investors have you managed to get together?

 

[BearCuban12]

From The Age - Business Daily

Fund eyes 'battered assets'Clancy Yeates
March 6, 2009
THE taxpayer-backed Future Fund is considering taking bigger stakes in battered asset classes that many investors have abandoned, including property, infrastructure and hedge funds.

At the end of December the fund had 1.3 per cent of assets in property and 1.9 per cent in infrastructure, stakes general manager Paul Costello described as "very modest".

Several companies in both sectors have been forced to offload assets because they have been unable to repay their loans or refinance debt.

"From our organisation's point of view, this is a very interesting time in those areas," Mr Costello said.

"We have been extremely cautious in terms of making commitments right now, and that area is under very active study from ourselves."

The Future Fund aims to return 4.5 per cent a year above inflation to meet about $150 billion in public service pension payments from 2020, but in 2008 it lost 8.49 per cent as markets plunged.

Mr Costello did not give details of any deals under consideration, and said buyers and sellers were yet to agree on the appropriate prices in these two asset classes.

There are a swag of infrastructure funds looking to sell stakes in their assets, including Babcock and Brown Infrastructure, B&B Power, and Macquarie Infrastructure Group.

Mr Costello also revealed that the fund was doing "a lot of thinking" about activity in the hedge fund market, which was a high-flyer in the boom years but is undergoing consolidation as the weaker players are weeded out.

The $60 billion Future Fund does not operate hedge funds, but 3.7 per cent, or $1.9 billion of its portfolio, is invested in "alternative assets", which Mr Costello said included a "hedge-fund-like" investment program.

 

[Tysonboss1]

I'm in the process of getting a few investors together and approaching the instos with a view to buying all their BEPPAs in one crossing at 2c. I'm meeting with interested parties at 10.00am Brisbane time.

what would make the instos sell out at 2c, What is the rational behind people dumping stock at such levels.

do the instos have infomation that we don't, are we the patsey in this.

 

[drsmith]

I wonder what proportion of BBI's units are actually on the accounts of institutional share holders.

 

[hardyakka]

Banksa,
I am a BEPPA and BBI holder and instead of watching the DJIA fall this evening, have been reading he old BEPPA threads, and am struggling to see how it is possible that BEPPA holders do not get paid andything

Once SPARCS is paid off then BEPPA holders are next in line.

CREDITORS
SPARCS ($300,000,000)
BEPPA (700,000,000)
BBI Ordinary (2,400,000,000)

So if the company went bust tomorrow with a NTA of 1.00 per share

after CREDITORS, SPARCS, and the administrators are paid, there must be at least 30c per share left over?

What are your thoughts on this?

I guess the timeline would be around 5 years to see anything.

If you had to play devils advocate, is there anyway on earth that BEPPA holders will not see any money?

What about if the company was nationalised by the Government? Is that a possible scenario?


Also, I note on the BEPPA T+C's that BBI are able to issue BONDS that have an equal or lesser priority than BEPPA. Would they consider raising capital by issuing other BONDS equal to BEPPA, and if so, what are the ramifications for BEPPA and BBI holders?

It helps to step back from the detail and look at it from that way.

Net equity after fully providing for all liabilities including SPARCS and BEPPAS is $2.4 billion. Lets assume the worst and write off a $1 billion of that net equity, call it impairement or whatever you like. Then assume another $400M of sundry costs to arrive at a realisable value number (ie cash). That leaves about $1 billion of cash attributable to the 2.4 billion units on issue or about 35 cents per unit.

Simple, full of holes but an easy way to stress test the potential unit price. There were no impairment provisions in the financials and I expect assets on average to realise book. On that basis the write off against net equity above of $1 billion can be written back. In this situation the unit price would double to about 70 cents even after allowing for the "sundry costs" of $400M.

This assumes of course BBI survives, which I consider it will do so long as it realises assets in the short term.

To summarise at a high level you can stress test the unit price for whatever scenario you chose and get an idea of the impact of these on the unit price.

Cheers

 

[banska bystrica]

I wonder what proportion of BBI's units are actually on the accounts of institutional share holders.

Not many instos own BBI but a large percentage of BEPPA are owned by instos.
The instos may just be prepared to dump all their BEPPAs at 2c to "clean their books".