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BBI - Babcock & Brown Infrastructure

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Intelligent Investor moved BBI EPS from Speculative Buy to Hold. They are concerned about the delays in asset sales.
 

No real bickering (here at least). I think we are collaborating.

The assets are great. Never questioned that.

The assets will get sold too. Never questioned that. But will they be sold before or after BBI is put into administration? That's the question.

I'm maintaining that the asset buyers may be deliberately stalling these sales, knowing that buying the assets from an administrator will give them better terms and less strict contracts. We are seeing lots of delays in these sales, so that is somewhat consistent with my theory. BBI doesn't have unlimited time, and that gives buyers leverage.

Look at it this way, there are only two outcomes worth considering:

1) BBI sells assets without going into administration. In that case obviously BBI EPS soars and it is a great investment at today's price. At this point that is so obvious to me it is almost not worth discussing.

2) BBI does not sell assets and is forced or volunteers administration. In that case the assets will get sold anyway. Then what? Either:

2A) We are forced to liquidation and do not sell other assets at prices that allow BBI EPS any recovery.

2B) We are forced to liquidation and sell other assets at high enough prices that BBI EPS has some recovery.

2C) We pay all corporate debt and leave administration as a going concern with all other assets and non recourse debt and BBI EPS intact.

For me knowing the relative probabilities of the outcomes in 2) is really the only interesting question left to answer.

If we get to administration, then I strongly prefer 2C as the outcome. I'm just trying to get some more certainty about probabilities.
 
theres no doubt that the purchaser of 29% stake in euroports is stalling. if they had euro30mill to deposit they are obviously serious buyer. the end amount always varies slighlty due to variables like exchange rate and current account recievable/payable.

they can walk away at any point and say they arent happy with the books or the market has fallen since the initial offer or any excuse, but then they have waisted there time. QIC did it with Powerco sale, and the end result was an immaterial discount. if we threw in an extra 1 or 2% at no charge or a 5mil discount who cares? they get a bargain and we repay significant debt.

as for PD Ports, not really concerned. we either sell bellow book value and take the hit or we sell other assets which allows us to keep PD until recovery in value and certainty ov Corus.

DBCT, not officially a delay yet, although news should be out soon. ofcourse buyers are trying for the best price possible, but the real cause of the 'delay' is they same reason they hired macquarie. its a great asset with real value. onne they dont want to sell. Waying up all offers and determining what will best serve BBI is the delay.

They could sell 100% to one buyer for the best offer and move on, no regrets. or they could sell 49%, pay off some debt , keep controling interest and maintain an earnings stream.

They could even be trying to unite several smaller buyers. Buyer A wants 15%, buyer B 25%, C 40% etc.

its a tricky sale because they want the best outcome because its a huge asset in comparisson to euroports/pd ports.
 
If BBI were in perfect shape to repay BBI EPS, assume it would trade at $1. Of course there are interest rate issues with any income investment, so it might trade at $0.95 or $1.05 to reflect interest rate expectations, but assume for simplicity it would trade at $1.

Doesn't the fact that it currently trades at $0.10 mean that the market feels there is about a 90% chance it will not be repaid? Ignoring present value and accumulated interest in the calculations for the moment, 90% * $0.00 + 10% * $1.00 gives us the $0.10.

I'm not arguing the market is right or wrong. I happen to think they are wrong. I'm simply trying define what the market pricing at this level implies, statistically, about the percent odds of failure to repay that is priced in at the moment.
 

I have always looked at it that way in a very broad and general sense.

ie 10 cents equates to the market believing there is a 10% chance of success, however this is where the opportunity lies as the market is not always efficient/correct.

The real chance of success may be 50 to 70% (ie 50 to 70c) those that believe the chance of success to be higher than 10% would be those who have purchased units at current prices and lower.
 

Technically, I guess you could express this as:

$0.10 = (1-x% ) PV($1 plus all interest payments)

where x% is the percent chance of NOT being repaid, and PV() is the present value of the stream of payments due through maturity. You could easily calculate X% and it must certainly be above 80%. Just too lazy to calculate it at the moment.
 

So in that case, perhaps it is clearer why I am trying to stress that we should be spending more time to calculate what happens in administration, because the price says there are extremely good odds that this is where we are heading.

Personally I would give them 50/50 odds of escaping administration at this point. But that's 50% odds that they are in administration, so even in my much more optimistic odds I want to understand what is likely to happen in administration.
 

Most of us on here have done our calcs on Risk/Reward and are happy with the outcome. My risk to reward is 1:10 approx and i am happy with that.

If BBI goes into admin, theres not a great deal we can do about it. At that point I will write my whole investment off (in BBI and BEPPA) if in the future I recoup something well that would be a bonus.

Our Administration laws are different to the US, there will be nothing left for equity holders (BBI) however BEPPA holders may receive something. Until it happens though I am not thinking/or worrying about it
 
I don't think "$0.10 = (1-x% ) PV($1 plus all interest payments) where x% is the percent chance of NOT being repaid" is correct.

I think there is a scare factor involved as well.

The distributions have been suspended for an indeterminate time, which scares off people who are looking for an income stream. The market is scared payback is not likely to be seen quickly which is stopping people taking up new positions, especially fund managers who might be aiming for good short term returns that can be published.

I think many potential investors would be sitting on the side lines waiting for a clearer picture, willing to miss say the first 15% of a pickup for the more certain 50% pickup once the outcome is more clear and the price is moving.

Picking random numbers, I think the x is 45% chance of not being repaid plus 45% scare factor = 90% discount. Somebody like BB is saying the figures are 5% chance of not being repaid 85% scare factor.

I get scared on roller coasters, even when I know the chance of one coming off the rails is really low.
 

You are substituting an objectifiable concept with a fuzzy one. Sure, some people are afraid. Others are eager. Ultimately the sum of those fears and positive sentiments comes down to a number, and the number implies something about the overall market's assessment of the odds of getting paid back.

Again, I wasn't suggesting the market is right. I agree with your 45% figure more than I agree with the market's number. I'm simply trying to define what is the market's sentiment about the risk here.
 
Can someone explain to me what is the HIN number that appears on Australian share statements? As a foreign holder, I don't get the actual shares and they are held in a custody account. Does anyone know if there is a way to find your HIN, or is it likely to be one HIN for all shares the custodian holds for more than one retail buyer?
 
Does anyone have the contact email for Helen in investor relations at BBI? The IR contact on the BBI web site goes to some third party outfit.
 
There are a lot of people who got burnt holding anything to do with Babcock and Brown. As a consequence they will not entertain any possible positive scenario for anything with a B&B association for far into the future, irrespective of the analytics.

B&B was built on being fuzzy about as much as it could, that's why this mess is here in the first place.


re HIN, check out http://www.asx.com.au/products/shares/how/chess_faq.htm
 
Persitentone, I don't know if you can see the course of trade for beppa but you will see a lot of small lots being traded. This is most likely because the small beppa holdings originated from some wasteful takeover activity B&B was involved in relating to another energy utility (AGL) that resulted in these beppa being issued as part payment to mum and dad security holders.

Many would just want to get rid of them, but the brokerage costs would be greater than the parcel values.
 

The whole Chess registration sounds complex, and I probably don't want to do that without getting an Australian accountant's advice.

By the way, if anyone knows a good Australian accountant who handles investment tax issues for non residents, it would be good to have that resource.
 
persistentone said:
Does anyone have the contact email for Helen in investor relations at BBI? The IR contact on the BBI web site goes to some third party outfit.
Click to expand...

Call her and ask,... (02) 9229 1800.

good luck getting info though, I get the feeling she is very good at poker.
 
Tysonboss1 said:
Call her and ask,... (02) 9229 1800.

good luck getting info though, I get the feeling she is very good at poker.
Click to expand...

Most investment relations departments seem to make it their job to never share any information with anyone. You kind of wonder why they don't just install an answering machine that says as much and save the salaries.
 
Reporting in from Dubrovnik, the jewel of the Adriatic.

The simple fact is that right now, the NAV of BBI is roughly $2.4Bn. That includes a book value of 1.9Bn for DBCT. If we plug in a sale price of $2.7Bn for DBCT, an additional $800M hits the NAV. That brings it to $3.2Bn.
For BEPPA holders to receive nothing in administration liquidation, there has to be impairment of $4Bn over all their assets. On my figures, I just cannot see where impairment would come to anything like $4Bn.
BBI can take a hit on Euroports, PD Ports and Westnet Rail and still have enough equity for BBI holders and BEPPA holders. Remember, BEPPA holders receive $1.04+ interest before BBI holders receive one cent.
 
What do you base this on? Just the fact that the market thinks BBI is in trouble, and ASF thinks it should be okay? Or?

Reading the financial reports, I really do have a hard time seeing administration. They are covering their debts.... they have significant net assets... they have some awesome assets...???
 

I base that on:

1) The fact that buyers have been stalling. And my experience in the market and in real business suggests that when a company gets close to a bankruptcy potential buyers become vultures and deliberately do a death watch and do not close deals that would otherwise be easy to close. I don't know why it would be different here than in nearly every other situation where I have watched the same thing happen.

2) The fact that PD Ports potential 25% decline in EBITDA might trigger a covenant default, and the banks could use that as an excuse to force administration. That's a bit off at this point though.

3) Based on the fact that the current price factors in more than an 80% chance on the income instrument of not being paid. I believe the market is wrong, but I'm not so arrogant as to believe that they are wrong by orders of magnitude.

Again, I wish people would stop talking about the assets. I know they have great assets. I know they will eventually sell the assets. I know they will get a lot of money for the assets. None of this has to do squat with whether they can escape administration. Escaping administration is mainly about the timing of those sales. TIMING OF SALES.... That's all I am focused on at this point.

And saying they have a 50/50 shot means I think they have even odds of NOT going through administration. I think either scenario is equally probable at this point. That's the way I am calculating my odds.
 
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