BBI - Babcock & Brown Infrastructure

investorpaul · 30 July 2009

random said:
Is anyone else having a problem accessing the announcement by bbi this morning?

I've tried on the asx site as well as commsec to get it up on the screen.
The last announcement also took ages to access although the announcement icon was published.

Guessing its todo with the sale!

It just confirms the sale has been complete but does not provide any new or further info. It is not listed as a price sensitive announcement

shiftyphil · 30 July 2009

Don't bother with announcements on CommSec at the moment, it's broken.

It's fine for me straight from ASX.

It's just a follow up to yesterday's notice saying the transaction is complete.

random · 30 July 2009

Thank you gentlemen.

............................................................................

nathanblack · 30 July 2009

random said:
Is anyone else having a problem accessing the announcement by bbi this morning?

I've tried on the asx site as well as commsec to get it up on the screen.
The last announcement also took ages to access although the announcement icon was published.

Guessing its todo with the sale!

through comsec worked fine for me, but note on the "comsec news" to the left hand side of the page that some clients are experiencing difficults accessing announcements. the way around it is to not search the code: BBI and then click on the news link, INSTEAD:
goto :"news/research" at the top of page, then enter code :bbi.

but, yes your right, its just regarding the earlier euroports announcement, saying all went through and its finalised. not price sensitive because nothing new in it.

cheers

random · 30 July 2009

Thank you gentlemen.

............................................................................

persistentone · 30 July 2009

investorpaul said:
Correct me if I am wrong but isnt the BBI model to have all assets "held at arms length" so if PD ports goes into Admin they "cut it off" and the main company BBI survives.

EG If PD ports goes into admin, they cut it off, BBI survive but there share price would still get hammered. Obviously not ideal but better than the whole company going into admin

90% correct. Unfortunately PD Ports has $170MM+ of corporate debt associated with it, and if we lose a lot of business there we trigger covenants on the corporate debt.

If the corporate bankers had a reason to push BBI into Administration, that technical default on covenants for the PD Ports corporate debt might let them do it.

I don't think they would want to do that though and I'm trying to establish that as a consensus among others.

Paragon1 · 30 July 2009

persistentone said:
90% correct. Unfortunately PD Ports has $170MM+ of corporate debt associated with it, and if we lose a lot of business there we trigger covenants on the corporate debt.

If the corporate bankers had a reason to push BBI into Administration, that technical default on covenants for the PD Ports corporate debt might let them do it.

I don't think they would want to do that though and I'm trying to establish that as a consensus among others.

True, the probability of a formal administration/liquidation is low - no defaults yet and strong cash flows in a tough environment etc.

But what about an informal liquidation similar to BNB. After breaking covenants the banks forced them to sell all assets over a three year period. They removed all interest payments and charged a 'restructuring fee' of 20% pa with a senior ranking. Subordinated noteholders will therefore get little or nothing after its all over.

BBI is a different though with strong cash flows and quality assets. However, has anyone handicapped the proability of BBI being turned into a 'zombie' company?

banska bystrica · 31 July 2009

Good summary from a poster over the road on yesterday's Fin Review article regarding the absence of competitive bidders for DBCT.

"According to the AFR article, the consortium in the hot seat is Anglo, Xstrata and Rio. Macarthur Coal and Felix Resources have reportedly baulked at participating due to the difficulty of obtaining funding for essentially a regulated return. The AFR's reasoning is that a serious buyer either needs a very low cost of capital or be a strategic buyer who wants operational control. The consortium fits fairly and squarely in the latter camp and there aren't too many companies around with sources of low cost multi-billion dollar capital. Hence the absence of competitive bidders."

My view was always that a consortium of majors would buy DBCT. It's just too expensive for small players. QIC would also have to be a serious bidder but probably only for 49%.

Mitsimonsta · 31 July 2009

BB - there is another possibility of a buyer that I had not thought of. Maybe the Future Fund?

A regulated return on investment would be very attractive for the Future Fund, and they have plenty of cash. It had not hit me until I read this article earlier this morning.

DBCT is export infrastructure of national importance, regulated returns, room for expansion if required. I would imagine this would be a good fit for the investment goals of the future fund.

Thoughts of the panel?

investorpaul · 31 July 2009

New BBI announcement PD Ports debt facility of 75 m pounds extended for 3 months, it was due to expire on 31 July

BBI Announcement

Good short term news gives us a few more months to get things sorted.

banska bystrica · 31 July 2009

investorpaul said:
New BBI announcement PD Ports debt facility of 75 m pounds extended for 3 months, it was due to expire on 31 July

Good short term news gives us a few more months to get things sorted.

Well I must have read a different announcement. That PD Ports news was neutral at best but mainly bearish. I shorted a few BBI at 7.9c on the back of it as I think the market will eventually wake up that this was not positive.

investorpaul · 31 July 2009

banska bystrica said:
Well I must have read a different announcement. That PD Ports news was neutral at best but mainly bearish. I shorted a few BBI at 7.9c on the back of it as I think the market will eventually wake up that this was not positive.

Its better than them requesting their money today though?

If they did, we dont have the money to give and would be up a creek without a paddle. Obviously 3 months is a very short period of time and the announcement highlights that the bankers want to keep their money within touching distance. However had the announcement said that the finances of PD Ports have requested payment of 75 m pounds today (due to expiry of the loan) and we dont have the cash it would be a bloodbath on the stock price.

nathanblack · 31 July 2009

investorpaul said:
Its better than them requesting their money today though?

If they did, we dont have the money to give and would be up a creek without a paddle. Obviously 3 months is a very short period of time and the announcement highlights that the bankers want to keep their money within touching distance. However had the announcement said that the finances of PD Ports have requested payment of 75 m pounds today (due to expiry of the loan) and we dont have the cash it would be a bloodbath on the stock price.

and take it in context. this debt facility was extended in january for 6months, now again for 3months. do you really think that in 3months time it wont be extended again if bbi desire?

what it does is show bbi's ability to access funds, and buys time. that time we will payoff more debt through sweep and hopefully announce another sale.

further more, if you consider sparcs a done deal(ie it will convert to BBI), then being due same time aint an issue. and although the sp will probable fall 50% if/when dilution happens, its pretty much factored in. if they avoided dilution the upside is greater than the downside.

and its gotta be positive for beppa surely?

investorpaul · 31 July 2009

nathanblack said:
and take it in context. this debt facility was extended in january for 6months, now again for 3months. do you really think that in 3months time it wont be extended again if bbi desire?

what it does is show bbi's ability to access funds, and buys time. that time we will payoff more debt through sweep and hopefully announce another sale.

further more, if you consider sparcs a done deal(ie it will convert to BBI), then being due same time aint an issue. and although the sp will probable fall 50% if/when dilution happens, its pretty much factored in. if they avoided dilution the upside is greater than the downside.

and its gotta be positive for beppa surely?

I think the short time frames of 6 months and 3 months indicates that the banks are still cautious. They know in a worst case scenario that they can ask for their money back in a very short period of time.

3 months comes and goes very quickly so hopefully BBI can keep moving forward with their asset sales process so they dont have this hanging over their head for too much longer.

nathanblack · 31 July 2009

investorpaul said:
I think the short time frames of 6 months and 3 months indicates that the banks are still cautious. They know in a worst case scenario that they can ask for their money back in a very short period of time.

3 months comes and goes very quickly so hopefully BBI can keep moving forward with their asset sales process so they dont have this hanging over their head for too much longer.

i agree 3months is a short time, and i agree the reason is so the banks can limit the risk and keep control over BBI and particularly getting back there money.

but every indication is that the banks look at the current situation then determine the risk before extending again, there is no prejudice about the company for any reason including the BNB assosciation.

in 3months time IF dbct hasnt sold, nor PD Ports, then the bank will reasses again. and provided all payments are being met, the will extend again, probable over a similar 3-6month period.

sure its not ideal to need to negotiate every 3months, and creates uncertainty, but its a big company and the people incharge of debt will be different to those making sales, so the distraction shouldnt be significant.

the short term implications are neutral, nobody expected the facility to be pulled. medium term neutral, they need to keep renewing the debt. long term its positive because its gives guidence to managements ability to operate in these tough condition.

with more substancial debt due in feb 2010, you can only ASSUME a sale is imenent.

bellenuit · 31 July 2009

banska bystrica said:
My view was always that a consortium of majors would buy DBCT. It's just too expensive for small players. QIC would also have to be a serious bidder but probably only for 49%.

But if it is going to be a consortium of majors, doesn't that imply that there is going to be no competition among the bidders. Or do you think there are several consortiums bidding?

banska bystrica · 31 July 2009

The Euroports sale ending up being 11.8X EBITDA. If they can get 11.8X for European ports that are struggling in the middle of a deep recession, then they should be able to get 12X EBITDA for DBCT. The major consortium bidding will not stuff around with a low ball bid knowing that QIC are also serious about buying a 49% stake in it. The consortium of major blue chips that are in there have the firepower and strength in their balance sheets to pay 12X. That gives a price of circa $2.8Bn.

nathanblack · 1 August 2009

banska bystrica said:
The Euroports sale ending up being 11.8X EBITDA. If they can get 11.8X for European ports that are struggling in the middle of a deep recession, then they should be able to get 12X EBITDA for DBCT. The major consortium bidding will not stuff around with a low ball bid knowing that QIC are also serious about buying a 49% stake in it. The consortium of major blue chips that are in there have the firepower and strength in their balance sheets to pay 12X. That gives a price of circa $2.8Bn.

I agree thatt QIC are most likely a serious bidder, and probably only interested in 49% stake. There offer is likely to be very reasonable and creates a need for any consortium to also offer a fair price or miss out, some would argue a consortium would need to offer a premium to gain control, especially as it seems like BBI are quite willing to settle on 49%

i dont entirely agree with using the euroports EBITDA multiple to gain any insight into DBCT, because as we all know there were many terms in the sale which would effectively give the purchaser 65% of europrts for no additional cost. that would half the EBITDA multiple to about 6x.

Perhaps selling 49% for a premium to QIC and having similar performance targets factored in that could give QIC a further 10% is a possibility. A bit harder to do if we sell 100% to begin with, in that case we can only offer partial refund if it doesnt perform to expectations.

banska bystrica · 1 August 2009

nathanblack said:
A bit harder to do if we sell 100% to begin with, in that case we can only offer partial refund if it doesnt perform to expectations.

Doesn't perform to expectations???? It's a REGULATED asset for goodness sakes. It doesn't matter whether one ship visits or 5000 ships visit. The income is known and guaranteed in advance.

nathanblack · 1 August 2009

banska bystrica said:
Doesn't perform to expectations???? It's a REGULATED asset for goodness sakes. It doesn't matter whether one ship visits or 5000 ships visit. The income is known and guaranteed in advance.

but there can be bottlenecks and delays and other complications that mean it doesnt achieve the >85 capacity. just making an expansion and CLAIMING a certain throughput doesnt make it so.

if you bought a ferrari only because the manufacturer stated it would do 300km/hr, and nobody had tested it to see if it could infact deliver on the claim, you then drive that ferrari under test conditions and it only reaches a maximum of 250km/hr, do you have a claim for compensation?

from my experience in large scale projects of this nature, id be very surprised if it ran at full capacity in the first full year.

BBI - Babcock & Brown Infrastructure

Similar threads

Privacy & Transparency

Privacy & Transparency