BBI - Babcock & Brown Infrastructure

bellenuit said:

Has anyone considered BEPPA rather than BBI? If BBI survives, each BEPPA will convert to about 1.075 BBI in 2012. Today BBI closed at $0.077 and BEPPA at $0.11. However, though the dividend is suspended for both BBI and BEPPA, BEPPA dividends are cumulative and must be paid before BBI dividends are paid. This means that should dividends be restored in 2010 as CommSec forecast, BEPPA shareholders will be entitled to all the missed dividends (Q4 2008, all 2009 and whatever missed quarters are in 2010). Their quarterly dividends so far in 2008 have each been slightly above 2 cents (about 8.4% p.a. on $1 face value) and are calculated using some fixed percentage over some bank rate (I don't have details to hand). So even allowing for an overall 2.5% fall in the underlying bank rate over the next 18 months compared to early 2008, that would imply missed quarterly dividends of about 1.5 cents each. If 7 quarters are missed, then the first new distribution in Q3 2010 will be 12 cents per share (8 X 1.5 cents). That is more than today's closing price. Additionally, BEPPA ranks ahead of BBI in the event of bankruptcy.

Any thoughts?

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The prospects of BBI and hence BEPPA restoring distributions has been priced by the market as being very low.

drsmith said:

The prospects of BBI and hence BEPPA restoring distributions has been priced by the market as being very low.

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Actually should BBI survive and no distributions are made prior to the conversion date in 2012, any non paid distributions to BEPPA holders get converted to BBI shares too. The full conversion formula is:

Each BEPPA gets converted to $1.08 + Value of Unpaid Distributions in BBI shares. So if by 2012, there are say $0.24 of unpaid distributions, then each BEPPA converts to $1.32 of BBI shares. If BBI at $0.20, then that is 6.6 shares.

It's certainly a gamble relying on BBI surviving until then, but CommSec is fairly positive in that respect.

My question was really trying to ascertain why one would buy BBI in preference to BEPPA. If one sees a future in BBI, then BEPPA seems a much better bet than BBI itself.

bellenuit said:

Each BEPPA gets converted to $1.08 + Value of Unpaid Distributions in BBI shares. So if by 2012, there are say $0.24 of unpaid distributions, then each BEPPA converts to $1.32 of BBI shares. If BBI at $0.20, then that is 6.6 shares.

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The math obviously can't be argued against but the impact of such a conversion at a very low share price also needs to be considered.

With a share price as low as $0.20 at conversion the impact would obviously be much more dilutionary than it would be with a higher share price. What then would be the impact of this on the BBI share price post conversion ?

The above of course assumes BBI survives which in itself is a much more important question.

Pigsy said:

My guess is the sp drop is due to the downgrading of the BNB credit rating to BB- by Standard & Poors. Not released to the market until 6pm but maybe insiders new the announcement before hand. If not expect another 20% drop tomorrow.

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You could be right. BBI is now at 6.8c but has been down to 5.7c. Why would the BNB credit rating impact on BBI? Isn't the latter independently financed or is there some tie up?

Very strong finish up 20% and huge volume in a sea of red elsewhere. Something is brewing and someone is getting set.

banska bystrica said:

Very strong finish up 20% and huge volume in a sea of red elsewhere. Something is brewing and someone is getting set.

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Interesting, i was wondering at around 8c whether it was worth picking up some more.. Im holding off as others are suggesting that BBI may not survive, thought with the assets they hold this would be unlikely IMHO

I've looked at the balance sheet. The corporate debt is not too big. It looks as though they will need to sell one more asset and they will survive. They got a very good price for 50% of Powerco the other day. Apparantly 25% higher than book value. Their net asset backing is over $1.20 based on book values. If book value are realistic and that seems to be the case with the Powerco sale being above, at 9c they look very interesting. They have been sold off savagely by investors who are looking for dividends and BBI cut their dividend to zero to reduce debt. Could easily bounce back above 12c in the short term.

Under 6c today. Who is selling at that price? The market could do with some reassurance from management. BNB 's problems and the lack of a dividend are obviously scaring investors away. Hopefully the sellers don't know something else that I don't. This share has been effectively valued as worthless by the market, despite the management and analysts saying that it is positioned to survive this downturn with an NAV currently well above $1. Bring on some good news.

BarryH said:

Who is selling at that price?

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Perhaps those who have come to the conclusion that the only thing that can be salvaged from this is a capital loss that can be offset against current or future capital gains.

As for reassurance from management, their credibility is shot. That's all to obvious from the share prices of BBI and the parent.

drsmith said:

Perhaps those who have come to the conclusion that the only thing that can be salvaged from this is a capital loss that can be offset against current or future capital gains.

As for reassurance from management, their credibility is shot. That's all to obvious from the share prices of BBI and the parent.

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Personally I think it is a huge amount of guilt by association.

Yes BBI has debt - but not drowning-in-it type stuff. Their assets are not overinflated in value like CNP, for example. Their assets are not subject to highly discretionary activities.

But I do wonder who is selling at these levels. At least the last directory activity was a buy, and Norway Central Bank was buying recently too.

I am certainly not selling for what is essentially lunch money.

DionM said:

Personally I think it is a huge amount of guilt by association.

Yes BBI has debt - but not drowning-in-it type stuff. Their assets are not overinflated in value like CNP, for example. Their assets are not subject to highly discretionary activities.

But I do wonder who is selling at these levels. At least the last directory activity was a buy, and Norway Central Bank was buying recently too.

I am certainly not selling for what is essentially lunch money.

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Re - the last directory activity was a buy

What do you mean? Last activity directory...

Do you mean the last BUY for the day on the market?

eMark said:

Re - the last directory activity was a buy

What do you mean? Last activity directory...

Do you mean the last BUY for the day on the market?

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Sorry - I was typing one-handed while entertaining my 2yo son

What I meant to say, was that the most recent director activity (buy/sell) was a buy on market.
http://www.asx.com.au/asxpdf/20080918/pdf/31ccxk5rrwyydn.pdf

No selling since then.

Tue Nov 18, 2008 4:00pm EST


SYDNEY, Nov 19 (Reuters) - Babcock & Brown Infrastructure Ltd (BBI.AX: Quote, Profile, Research, Stock Buzz) plans to sell a stake in one of Australia's largest coal ports, Dalrymple Bay, the Australian Financial Review said on Wednesday.

BBI, which is managed by troubled Australian investment bank Babcock & Brown Ltd (BNB.AX: Quote, Profile, Research, Stock Buzz), was planning to sell between 30-49 percent stake of the port in northern Queensland state to raise funds to pay down its debt, the report said. The sale could fetch A$500 million ($325 million), the report added.

"Where we know there is strong interest, it's appropriate that we test out appetite and pricing for co-investing, as that means we make decisions on which options to pursue with the best information at hand," BBI managing director Jeff Kendrew was quoted saying in the report.

The port has a capacity of 68 million tonnes per annum (mtpa) and is being expanded to 85 mtpa to meet increased demand from miners.
BBI owns 100 percent of the port, under a 49-year lease from the Queensland state government. ($1=A$1.54)

(Reporting by Denny Thomas; Editing by James Thornhill)

The potential sale of Dairymple for $500 mil of much needed capital would be more good news following the powerco sale. No updates on Westnet or Euroports but it is obvious that they are serious about reducing debt which is really the only outstanding problem left. On this news the market is selling bbi below 5 cents today Go figure!

Looking very cheap at 5 cents. but whether to bet the mortgage on it or not LOL. To take the plunge or not.... ., My conservative side says to wait a bit, but the Gordon gecko side tells me this could be a great opportunity to actually make some money in the future Sigh what to do ,, what to do ;-)

BarryH said:

The potential sale of Dairymple for $500 mil of much needed capital would be more good news following the powerco sale. No updates on Westnet or Euroports but it is obvious that they are serious about reducing debt which is really the only outstanding problem left. On this news the market is selling bbi below 5 cents today Go figure!

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It might indicate that they are having problems selling the other assets they have put on the block. Having broken the 5c barrier, they might attract some buyers but the question is, who is selling at these prices?

I read it could be Fund Managers who might sell a these prices, because clients want cash now. Lot of fear at this time, they want to get out. It might be the same thing for many stocks.

That's just an hypothesis...

well. watching this stock fall. Worried about debt etc and general failure of investment bank model. Today I couldn't resist doubling my commitment to 22000 shares for 500 dollars as opposed to the 8500 for the previous investment. am i a fool for averaging down. Only time will tell. Seems cheap. If this stock fails I think there should be some criminal charges laid against the directors of bnb and bbi

I stumbled across this this evening from the Business Spectator:

NOTE the bold and underlined section I have highlighted.

"BBI to sell stake in Dalrymple Bay


Babcock & Brown Infrastructure (BBI) has put its $2.3 billion Dalrymple Bay coal port up for sale, to cover debt and find a partner to fund long-term expansion, reported The Australian Financial Review.

The infrastructure arm of troubled investment bank Babcock & Brown, BBI wants to sell 30 to 49 per cent of the Queensland port.

The paper reported it understands BBI was approached by a consortium of miners interested in buying Dalrymple Bay and has issued confidentiality agreements to interested parties.

"Where we know there is strong interest, it's appropriate that we test out appetite and pricing for co-investing, as that means we make decisions on which options to pursue with the best information at hand," BBI managing director Jeff Kendrew told the paper.

Sources said the sale will only go ahead if BBI negotiates a good price for the port asset.

While sources close to several of the customers that use Dalrymple Port, including BHP Billiton, Rio Tinto, Xstrata, and Anglo Coal Australia, said they wanted to grab an ownership stake in the port to further align their interests with BBI's and gain more influence over future upgrades and work, the paper reported.

These customers currently own DBCT, which operates and maintains the port through an outsourcing agreement with BBI. BBI owns Dalrymple under a lease with the Queensland government.

In May BBI warned that the Dalrymple Bay Coal Terminal upgrade would take longer than previously expected, with the ramp-up to 85 million tonnes per annum (Mtpa) capacity now expected by the end of the first quarter of 2009.

While the original schedule would have seen DBCT producing 85Mtpa by the end of the 2008 calendar year, heavy rains and flooding in the Mackay area in January and February led to the final stage of the project being split into two parts.

Separately, ratings agency Standard and Poor's (S&P) lowered BBI's rating to 'CCC+', from 'BB-', to reflect financial challenges faced by the company.

The alteration follows news that BBI's parent would embark on a comprehensive restructure program, which is expected to cost 1,000 jobs.

"The 'CCC+' rating reflects our view of an increased risk that BBI will fail to meet its $3.1 billion corporate facilities' financial covenants, which was also highlighted in the company's announcement today," S&P credit analyst Sharad Jain said.

The rating would likely to be lowered to 'D' if the lenders accelerate the payment of a facility, or restructure a facility in such a way that is deemed by S&P as a distressed exchange, the ratings service add"




Unfortunately the author has mistaken BBIS (a subsidiary of BNB) for BBI. Poor journalism like this does not help at all. The journalists are really very poor.

DionM said:

Personally I think it is a huge amount of guilt by association.

Yes BBI has debt - but not drowning-in-it type stuff. Their assets are not overinflated in value like CNP, for example. Their assets are not subject to highly discretionary activities.

But I do wonder who is selling at these levels. At least the last directory activity was a buy, and Norway Central Bank was buying recently too.

I am certainly not selling for what is essentially lunch money.

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Before looking at asset quality the problem to me is the level of debt relative to assets. This may have been fine while credit was easy but that has now changed and changed for some time to come.

BBI is now a foreced seller of assets to reduce debt and that puts it at a huge disadvantage in terms of negotiations with potential buyers. Whether or not thier assets as a whole are overinflated in the present market remains to be seen.