BBI - Babcock & Brown Infrastructure

Not looking good.

This would be a good time to see some positive leaks or announcements regarding the sale of DBCT. Althought the desperation BBI would be in would surely play into the buyer's hand when negotiating.

banska bystrica said:

BBI's corporate bankers are bleeding us dry here. Make no mistake. If DBCT doesn't sell for a big premium to book value, it will be a very difficult road ahead. The banks do not care about equity holders (BBI) or debt holders (BEPPA) other than themselves.
They lend you an umbrella when the sun is shining and when it rains they threaten to take it from you unless you pay much more interest. Disgraceful really.
We need to clear the corporate debt so we get the banks to let go of our necks.

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I get the impression from the above a certain level of discomfort from your level of exposure. In the cold light of day banks have always been banks and will continue to be..... banks.

I imagine that from your posts to date you would currently have a reasonable profit so perhaps it's worth considering selling enough to recover your initial capital outlay and leave the rest to do whatever, or something similar.

drsmith said:

I get the impression from the above a certain level of discomfort from your level of exposure.

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Not at all. I actually bought another 150,000 BBI today at 8.9c. I think it's very cheap. Banks will be banks but they will not send BBI to the wall. It's not in their interests to do so. They will try and bleed them with interest. However, I expect DBCT and PD Ports to sell well above book value thereby paying off the corporate debt which will increase BBI's asset level debt rating.
A corporate debt free BBI will be well north of 9c.

I'm a touch confused:

As part of the 29.7% share subscription B&B European Infrastructure Fund, one of the two potential investors in Euroports, paid a refundable €35M deposit to Euroports, guaranteed by BBI and secured against the assets of Euroports. If the transaction does not complete BBI has stated that Euroports does not have sufficient cash to repay the deposit. Could there be a situation where one BNB fund sues another?!

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Is worst case scenario, BBI is forced to sell EuroPorts....

Or, is it BBI is forced to sell EuroPorts and pay up to 35MillionEuros?

At either rate, surely neither is too devastating.... as long as investors act rationally?

Is it mid-june that an announcment RE: EUroPorts will be made? Then 30th June for DBCT?

Cheers.

banska bystrica said:

Not at all. I actually bought another 150,000 BBI today at 8.9c. I think it's very cheap. Banks will be banks but they will not send BBI to the wall. It's not in their interests to do so. They will try and bleed them with interest.

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The banks not sending it to the wall does not necessarily equate to meaningful equity being left over for shareholders. Take Centro for example.

With BEPPA have you been turning them over for profit or just buying ?

You're making a big mistake comparing Centro to BBI. BBi has defensive assets, have never breached a debt covenant and all assets are still EBITDA positive.
It's apples and oranges. There's a lot of headroom with equity. NAV is still $1 compared to a BBI price of 9c. That's a massive difference.

I haven't sold one single BEPPA and I will not until fair value is reached. I bought heavily at 5c, a few at 4.5c, lots at between 5c and 8c. If debt holders want to give up their debt at 10c in the dollar then good luck to them. It's crazy but obviously there are some forced sellers in that BEPPA market. I'll relinquish my debt at 50c in the dollar this year. If I cannot achieve that, I'll hold until reset or switch into BBI at the appropriate time.

Just because a business faces some hurdles doesn't mean you shouldn't buy that business. In fact that's the time to buy stocks like BBI. I'd rather be buying at 9c than $1.90. Warren Buffet was just on CNBC saying that in the recession of 1974, he made a lot of money buying stocks. He also had his most profitable year ever in 1955 (another recession year) when the DOW put on 50% in twelve months. BUY IN GLOOM. SELL IN BOOM.

drsmith said:

The banks not sending it to the wall does not necessarily equate to meaningful equity being left over for shareholders. Take Centro for example.

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Yes. But, in this case, it seems to indicate there will be value for shareholders.

BBI has got over $2Bn in net book value assets, per last financial report ($2.2Bn? I forget, but it's over $2Bn).

If BBI sells DBCT for the prices thrown around on here ($2.5Bn - $3.5Bn*)... Net book-value assets will be in the $3Bn-$4Bn range.

There is a concensus that, WORST case secnario, book value is overvalued by 5%. Let's assume it's 20%.

Lets also assume net assets are $3Bn - 20% then. So, $2.4Bn.

Let's assume that BBI need to have a fire-sale because they are being liquidated....

Let's say that BBI's (largely)regulated assets (and all assets) are being sold at a discount (because of the fire-sale). Let's knock 75% off of the value of their (largely) regulated assets.

$2.7Bn *.25
=$600M Net Assets.
Lets say there are $300Ml in liqudiation costs (excessive?!)

1.8Bn shareholders, sharing $300Ml.

Each shareholder gets $0.165 per share...

If I had enough cash, I'd be buying more. Put it that way.

(For interests sake:
$3Bn net book value assets (fairly conservative if DBCT sells brilliantly), 5% discount to book value (seemingly the pessimistic concensus), firesale resulting in a discount of 33%... then $200Ml liquidation costs)
$1.7Bn net assets / 1.8Bn shareholders....
Nearly $1 each. )

(Or:
$3.5Bn in net assets, valued fairly, no fire sale... 1.8Bn shares....just under $2 NTA per share, being sold at $0.095)

All in all, my avg BEPPA price is $0.10, I wouldn't mind BBI being wound up too much. Yes, I'd be worried liquidation costs would blow out... but, I certainly wouldn't be crying. It still would seem likely to pay-out handsomely.

*($240M * 15multi = $3.6Bn... $3.5Bn certainly isn't out of the question).


BANKSA:-Would you mind checking my figures ^^? Am I in the ballpark?

Also, why would you sell BEPPA for $0.50? Just because you want more BBI? Or for another reason? I'm quite content to sit on my pile till reset / June 2011 and get my 1250% ROI.

June 2011, do you think BBI will be worth more than $1.20?

Finally... this 'reset' business... can you explain that to me?

Is that just when 50%+1 of BEPPA holders vote to reset BEPPA to have another 3 year maturity, and get paid out all interest that is due? And, interest rate above the 90DayBankRate (or whatever is used) will likely increase {But, not paid out the face value of $1 for 3 years from the reset date)?

If this was voted on by BEPPA shareholders, would I have the option of receiving par value, or would I be forced to go with the majority?

Finally... reset date... is that something you would expect Early 2010 / Late 2009, if it were to happen? Why? Improved credit rating?

I had a detailed look at the June 2008 the financials to see whether there was any reference to the E35M being held in a trust account or similar and found no such reference.

If BBI had to walk away from this asset they the impact after asset level debt is about $300M. From the viewpoint of a BEPPA holder the simple fact is that this means that $300M of the $2.4B safety cushion disappears, ie the loss is borne by BBI ordinary units.

However the real damage would be to the confidence of the market in BBI, so this only reiterates the need to realise DBCT and eliminate as much corporate debt as possible as soon as practical.

Overall I do not see this as a deal breaker type matter, as along the track we have to expect to occasionally take a step back for every two forward.

Cheers

hardyakka,
It's not in the interests of small minority players to press the buttons too hard here and force Euroports into administration. That will delay their payment for years and they may miss out altogether. I think there will be a negotiation on that matter if the Euroports partial sale falls over. The minority put option holders would be silly to cut off their nose to spite their face.

ricee007 said:

BBI has got over $2Bn in net book value assets, per last financial report ($2.2Bn? I forget, but it's over $2Bn).

If BBI sells DBCT for the prices thrown around on here ($2.5Bn - $3.5Bn*)... Net book-value assets will be in the $3Bn-$4Bn range.

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The NTA of BBI would only increase by the amount DBCT realises in excess of book. From memory DBCT is held at about $1.9B and BBI NTA is $2.4B. If DBCT sells for say $2.6B, then NTA increases by $0.7B to $3.1B.

(BB if my numbers are out pls say so)

Cheers

The only asset that presents problems is Euroports. PD Ports will be fine once Tesco start utilising their distribution centre at Teesport. That will be up and running in August. Revenues are expected to increase rapidly. The following is from Cargo news yesterday:

"Growing interest in the port-centric logistics concept has led senior PD Ports executives to predict bullish 2009 volumes as possible buyers circle the company, now officially for sale.

Commercial director Graham Wall predicted a 27% growth in container volumes at Teesport in the financial year which begins on 1 July, despite the recession. The port has seen an 8% decline this year.

The company expects the new Tesco distribution centre at Teesport to be a major source of cargo when it opens on 17 August, with 160,000 pallet spaces generating additional container imports through the port.

Asda is also expected to increase its throughput at the port, while a series of other deals are in the pipeline.

"We’ve secured a deal with a major 3PL that is going to confirm another 17,000teu through the port, " said Wall.

"Logical Link and East Coast Feeder are also driving volumes. Then there are smaller port-centric logistics deals we’ve done, for instance with Tailors of Harrogate, where we’ve secured a contract for 1,000 containers a year coming through Teesport.

"We’ve also secured a deal with Containerships, which acquired Contaz, and we’re now deemed as the Containerships transhipment hub in the UK, which we expect to develop another 20,000teu with their advancement into the Mediterranean.

"If you look at the Felixstowe, Southampton, and Thamesport scenarios:

they’ve been affected by the global downturn in business, but we’ve locked-in key clients that have to import."

PD Ports is for sale following Australiabased owner Babcock and Brown filing for administration in March.

Wall expected the buyer to be a financial entity, with the sale due to be completed by autumn.

Despite uncertainty over its future ownership, executives remain confident that the planned 1.5m teu Northern Gateway development will proceed, with phase 1 expected to begin operations in mid-2013.

Babcock and Brown has given PD Ports approval to spend £700,000 (US$1m) on ground investigations that will allow it to make an accurate assessment of construction costs.

Wall explained that six shipping lines and four major retailers/industrials had issued letters of intent expressing interest in shipping through Northern Gateway.

He added that the group was in discussions with terminal operators, shipping lines and other investors regarding joining the project.

He said: "We’ve interest from three major terminal operators, one of which made an offer that we weren’t in a position to accept because of the sale process. It was a very good offer from a very well known operator. We could be in a confident position where we have multiple offers."

banska bystrica said:

hardyakka,
It's not in the interests of small minority players to press the buttons too hard here and force Euroports into administration. That will delay their payment for years and they may miss out altogether. I think there will be a negotiation on that matter if the Euroports partial sale falls over. The minority put option holders would be silly to cut off their nose to spite their face.

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Agreed BB, my post should have referred to the worst possible case scenario.

I would like to see this matter negotiated and a resolution announced to the market, not a high profile scramble for funds at any cost by BBI. That would be damaging to confidence.

Cheers

DBCT will not sell for 15X EBITDA. It's a regulated asset and 15X is too much for a regulated port. More like 12.5X which would value it at $2.8Bn. That would add $1Bn in equity to BBI and bring NAV to $1.38.

banska bystrica said:

DBCT will not sell for 15X EBITDA. It's a regulated asset and 15X is too much for a regulated port. More like 12.5X which would value it at $2.8Bn. That would add $1Bn in equity to BBI and bring NAV to $1.38.

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Hmm, as mentioned, 15X was pretty much best case scenario (then proceeded to use under 15X in my calculations). But, I would have thought 12.5X would have been too low. BHP and Rio can get some serious business improvements here.

And, even then, with EBITA of $240M or so in a year and a month...
$240M * 12.5 still is $3Bn, and I'd be jumping up and down excitedly if DBCT sold for $3Bn. I just want them to sell the whole thing, not just 49%. I'll take 100% sale at $2.5Bn or above very happily.

At any rate, my major point is that liqudation value is not a concern for anyone who bought in at under $0.16.

I edited my last post after you replied, so you might have missed it. Any help would be appreciated

Finally... this 'reset' business... can you explain that to me?

Is that just when 50%+1 of BEPPA holders vote to reset BEPPA to have another 3 year maturity, and get paid out all interest that is due? And, interest rate above the 90DayBankRate (or whatever is used) will likely increase {But, not paid out the face value of $1 for 3 years from the reset date)?

If this was voted on by BEPPA shareholders, would I have the option of receiving par value, or would I be forced to go with the majority?

Finally... reset date... is that something you would expect Early 2010 / Late 2009, if it were to happen? Why? Improved credit rating?

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Regards,
Rhys

ricee007 said:

Also, why would you sell BEPPA for $0.50?

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I said I would sell for 50c this year. I would then buy BBI with the funds as I believe BBI will be higher than BEPPA at reset (2012).

If I cannot get 50c for BEPPA this year, then I will wait. I see 50c as achievable if they eliminate all corporate debt, including NZ bonds, with the sale of DBCT and PD Ports. That should ensure BBI's survival.

what is the total number of marketable BEPPA securities?

If 10c holds over the next week, i'm stepping in

Largesse said:

what is the total number of marketable BEPPA securities?

If 10c holds over the next week, i'm stepping in

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Please don't quote me... but, off the top of my head, I THINK that there are 778,000,000 BEPPA in the marketplace.

ricee007 said:

Please don't quote me... but, off the top of my head, I THINK that there are 778,000,000 BEPPA in the marketplace.

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thats a damn thin orderbook then considering......
wouldnt mind some more onscreen buy/sell

don't quite know where to enter at this stage, this rampant Dow bull is running hard, it has to run out of puff eventually though....

Largesse said:

thats a damn thin orderbook then considering......
wouldnt mind some more onscreen buy/sell

don't quite know where to enter at this stage, this rampant Dow bull is running hard, it has to run out of puff eventually though....

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It trades on low volumes, yes, much lower than BBI.

Can anyone please explain SPARCS to me?
The NZX website, IMHO, sucks.

Is SPARCS interest due on the 17th May?
Will BBI pay this interest now, or roll it over?
Do SPARCS mature in December 2009?
What are SPARCS currently trading at?

Cheers,
Rhys

who are the potential buyers for dbtc? what are the underlying obstacles obstructing it's sale? are potential buyers able to raise funds to acquire in this current climate?

also if you dont mind me asking, are you guys that are currently holding both beppa and bbi skewing your holdings towards beppa?