BBI - Babcock & Brown Infrastructure

[boff]

I see on the news today that BBI has hired Royal Bank of Scotland and Dresdner Kleinwort to sell UK ports operator PD Ports (as reported in the Australian).
Off the back of that the share price drops another 15%. Perhaps the market thinks that BBI is preparing to wind itself up?
On the other hand the consensus seems to be that if BBI is able to survive the next year or two we'll come up smelling of roses. Isn't the ports operation one of it's better assets though?

 

[BearCuban12]

BOFF - that is not the reason for the drop today - have a look at their announcements - it is about the SPARCS conversion

 

[boff]

sorry, you're quite right. I've just read it, has the price dropped due to an expected dilution of shares? Or because BBI may be paying out a load of cash?

 

[banska bystrica]

The potential dilution to BBI holders is self evident and explains why the share price has fallen today.
I would doubt SPARCS holders would elect to convert to BBI however, the company's hand may have been forced by the banks here.

 

[YELNATS]

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.

The potential dilution to BBI holders is self evident and explains why the share price has fallen today.
I would doubt SPARCS holders would elect to convert to BBI however, the company's hand may have been forced by the banks here.

Hi Banksa, as a holder of both BBI and BEPPA, I am always interested in your analysis. If SPARCS is not an issue, what could be the effect of today's director's decision on SPARCS have on the long term future of BBI/BEPPA.

Is it time to do a rethink?

Many thanks.

 

[banska bystrica]

Hi Yelnats,

SPARCS is now an issue for the reason I gave above. Whilst BBI has enough cash to pay SPARCS holders in cash, they are not doing this. Therefore, we can only assume a directive has come from BBI's bankers to use all free cash to pay off corporate debt.
It reinforces my view that BEPPA is by far the preferred exposure in this play.
I continue to buy BEPPA, however I did buy a very small parcel of BBI at 3.1c after the announcement this morning as I thought it was an over-reaction.

Ironically, if SPARCS holders all decided to convert to BBI, this would smash the BBI price but would be beneficial to BEPPA holders as dilution is not a concern if you are holding BEPPA. SPARCS rank equally with BEPPA so any SPARCS holders that convert to BBI give up their preferred status.

 

[mark_au]

Hi Yelnats,

SPARCS is now an issue for the reason I gave above. Whilst BBI has enough cash to pay SPARCS holders in cash, they are not doing this. Therefore, we can only assume a directive has come from BBI's bankers to use all free cash to pay off corporate debt.
It reinforces my view that BEPPA is by far the preferred exposure in this play.
I continue to buy BEPPA, however I did buy a very small parcel of BBI at 3.1c after the announcement this morning as I thought it was an over-reaction.

Ironically, if SPARCS holders all decided to convert to BBI, this would smash the BBI price but would be beneficial to BEPPA holders as dilution is not a concern if you are holding BEPPA. SPARCS rank equally with BEPPA so any SPARCS holders that convert to BBI give up their preferred status.

Thanks for the insight BB, this is a very interesting scenario... Perhaps time for me to consider selling BBI for BEPPA

 

[banska bystrica]

mark_au,

Now more than ever, BEPPA is the stock to be in. The banks are calling the shots and they do not give one iota about dilution to BBI holders.
Imagine what happens in 2012 assuming the BBI share price is still in the toilet?

 

[hardyakka]

mark_au,

Now more than ever, BEPPA is the stock to be in. The banks are calling the shots and they do not give one iota about dilution to BBI holders.
Imagine what happens in 2012 assuming the BBI share price is still in the toilet?

I have noted a few comments about the "banks calling the shots" or similar.

Lets consider a purely hypothetical situation.
Banks, as sources of finance, are critical to a Responsible Entity (RE) and necessary in the operation of a registered scheme such as BBI. Now as I understand it the RE is not in breach of any lending covenants etc, although it is sailing very close to the wind.

If the RE was allowing the banks to run the business in their interests and considerating BBI is not under any form of formal management then the RE would likely be in breach of its obligations under Corporations Act s601FC, this states as follows (important sections only noted with key sections underlined):

In exercising its powers and carrying out its duties, the responsible entity of a registered scheme must:
(a) act honestly; and
(b) exercise the degree of care and diligence that a reasonable person would exercise if they were in the responsible entity's position; and
(c) act in the best interests of the members and, if there is a conflict between the members' interests and its own interests, give priority to the members' interests; and
(d) treat the members who hold interests of the same class equally and members who hold interests of different classes fairly; and
(e) not make use of information acquired through being the responsible entity in order to:
(i) gain an improper advantage for itself or another person; or
(ii) cause detriment to the members of the scheme; and
(f) ensure that the scheme's constitution meets the requirements of sections 601GA and 601GB; and
(j) ensure that the scheme property is valued at regular intervals appropriate to the nature of the property; and
(k) ensure that all payments out of the scheme property are made in accordance with the scheme's constitution and this Act; and
(l) report to ASIC any breach of this Act that:
(i) relates to the scheme; and
(ii) has had, or is likely to have, a materially adverse effect on the interests of members;
as soon as practicable after it becomes aware of the breach; and
(m) carry out or comply with any other duty, not inconsistent with this Act, that is conferred on the responsible entity by the scheme's constitution.

Also the directors of an RE are jointly and personally responsible for ensuring an Australian Financial Services licensees compliance with the financial services laws, which includes key sections of the Corps Act.

If an RE ever put the interests of a service provider or financier before those of members and this was done other than in the best interests of members then the RE would have all sorts of problems. And we havent even started looking at the obligations under the Constitution.

All this of course is purely hypothetical as I am sure such a situation would never arise.

I hold BEPPA only

Cheers

 

[banska bystrica]

Hardyakka,

Do you see today's announcement (with attached potential dilution scenarios) as a ploy by BBI to entice SPARCS holders to accept the new reset terms rather than convert to BBI?

Cheers.

 

[hardyakka]

Hardyakka,

Do you see today's announcement (with attached potential dilution scenarios) as a ploy by BBI to entice SPARCS holders to accept the new reset terms rather than convert to BBI?

Cheers.

BB,
I noted the very careful wording of the announcement. The wording was non-committal and gave the directors the scope to change their minds, if they did so they would not be in breach of the listing rules. An "intention" is by its very definition non-binding. So to answer your question I think you are spot on.
The wild card here is what is the situation of individual SPARCS investors. I think it very hard to predict an outcome because it is not only a case of receiving BBI securities. Some may want to receive these and get out on the basis that some cash plus a tax loss is better than nothing.
Cheers

 

[Viva_Las_Vegas]

Hi Guys,

As a holder of BBI shares I am following your comments. However I have no idea what a BEPPA holding is. How is it different to a BBI share and where is it listed?

Cheers

 

[Tysonboss1]

Hi Guys,

As a holder of BBI shares I am following your comments. However I have no idea what a BEPPA holding is. How is it different to a BBI share and where is it listed?

Cheers

Beppa is a prefrence share. Basically as part of funding the alinta take over BBI paid alinta and agl share holders partly by giving them Beppa shares which are kind of like an IOU ( I owe you ).

each beppa share has a face value of $1, which means that BBI has a debt to the beppa share holder of $1 for every Beppa share. BBI must pay interest to the Beppa share holder based on the $1 face value until they have repayed the $1 debt in by either paying them out in cash or giving them $1 worth of BBI shares.

there is a little more to it also but BB should beable to fill in the gaps I have missed.

 

[Viva_Las_Vegas]

Your explanation has set me straight! Thanks for taking the time. Obviously i still have a lot to learn.

 

[mark_au]

Your explanation has set me straight! Thanks for taking the time. Obviously i still have a lot to learn.

Gday

we all do in this current environment ;-)

The BEPPA thing isn't immediately obvious as there is no information on comsec regarding it, you can enter the code and get trade info but no announcements/analysis etc so you need to know that BBI is the "parent company" so to speak... very confusing unless you've followed the whole BBI thread here , which i recommend you do, its a very interesting read with lots of great analysis and opinions

 

[deano9801]

Babcock & Brown has been placed into voluntary administration

http://www.news.com.au/business/story/0,27753,25180768-462,00.html

I'm thinking this is a good time to buy because of this paragrah..."The appointment of administrators was not expected to have an impact on parent company Babcock & Brown International (BBI)"

Any comments appreciated.

Dean.

 

[random]

BB,
With the receivers appointed to BNB now, does this terminate all payments now and in the future for management fees to BNB from BBI?

 

[boff]

Babcock & Brown has been placed into voluntary administration

I'm thinking this is a good time to buy because of this paragrah..."The appointment of administrators was not expected to have an impact on parent company Babcock & Brown International (BBI)"

Any comments appreciated.

Dean - Babcock & Brown International is not Babcock & Brown Infrastructure !! Thank god!
Not withstanding, I think it's good that the whole BNB mess is finally drawing to a close. I've had close on $200k evaporate because of that. Now perhaps the (ex)satellites that are left that represent good value will start to shine.....

 

[random]

Sorry for previous post.
I meant to say voluntary administrators being appointed - not receivers.
My mistake.

 

[deano9801]

oh yer - sorry - didn't read it properly! Regardless how do you think this will affect BBI stock in the short term i.e next few weeks?