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BBP - Babcock and Brown Power

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This is fron GPG website:

"GPG makes selective investments, predominantly in public companies, for the purpose of enhancing and realising value by means of appropriate levels of shareholder influence and control. This could involve the restructuring of the financing or management of the companies in which GPG invests. GPG’s role may also encompass initiating and facilitating mergers within the relevant industry to achieve constructive rationalisation. In general, this active involvement is outside the scope of most institutional investors.

No equity investment is made without exhaustive research and unless it is possible to form a robust view of a stock’s medium-term prospects. GPG refrains from investing in businesses which it does not understand or those it regards as speculative. This has led it to invest almost exclusively in established companies with a long track record."


Anybody have an idea why they're in there? What value do they see?
Click to expand...

To answer your question, I think GPG is in the business of buying equity into very under-valued companies, and through active participation of management of the company to realize the company value.

I think the reason they bought 10% stake is that they consider BBP a very undervalue company trading at 6% of their book value. I believe the managment have conducted a through study on BBP's books before buying, and obviously they believe that company will survive this GFC and return to some form of profitability, Value investing, I think thats the term.



In terms of BBP ability to survive their current talks with the banks, I believe the outcome will be positive.


- First they have sold an onerous electricity contract and will sell more in the future, so that they can sell power at market price.
- The banks have lower the ICR temporarily, giving BBP a breather.
- Gas Tariffs in WA have increased, increasing Alinta's revenue.
- They are number of potential bidders in dark corners, although none have made satisfactory bid for the assets so far.
-BHP contract, starting July this year will add 70m extra revenue, not much but anything helps with this overstressed company.

This does not mean the BBP is out of the woods yet, the 2.8 billion facility with bankers and 384mil they still owe to BNB liquidators is a problem, there is no guarantee, but considers the upside if BBP do survive. GPG is headed by an very seasoned investor they don't buy a company without believing the company can survive.... but then I could be wrong.
 
Everything depends on the outcome on negotiation with bankers:

I think the credit enviornment is loosening and banks are no longer as fearful as before on their investments. Can BBP come out unscathed after mid-sept negotiation? I really don't know, what I can reasonably guess is that their revenue should be higher starting this financial year, and progressively become higher should they survive.

To unlock BBP undervalued assets, BBP must sell the parts of their portfolio or a full takeover, to a company with better management and stronger balance sheet that can digest BBP debts. As well as a successful outcome with the banks, and a more competent management that can make sure power stations are at their highest possible capacity.

Another point I made before was that there is still equity left for shareholders even after liquidation, BBP is not like BNB, it is mostly backed by tangible assets. At present market cap of around 60 million dollars, and looking at the last balance sheet report, they had something close to 700 million equity in the books, and please correct me if I am wrong, but even after a firesale liquidation, and applying a huge discount to the fair value on the equity left, shouldn't there still be something for the shareholders? Although it would probably take years to finalize everything. This is why I think there might be some value left. All BBP needs is to remove the debt dagger that sits on top of the company.


Last year has been really turbulent, lot of companies have withered and died, BBP has made it this far which is a feat on its own. I wish the best to any brave BBP unit holders out there.


I should disclose that I also hold 12500 BBP units at 8C each.
 
Steven12 said:
This is fron GPG website:

To answer your question, I think GPG is in the business of buying equity into very under-valued companies, and through active participation of management of the company to realize the company value.

I think the reason they bought 10% stake is that they consider BBP a very undervalue company trading at 6% of their book value. I believe the managment have conducted a through study on BBP's books before buying, and obviously they believe that company will survive this GFC and return to some form of profitability, Value investing, I think thats the term.



In terms of BBP ability to survive their current talks with the banks, I believe the outcome will be positive.


- First they have sold an onerous electricity contract and will sell more in the future, so that they can sell power at market price.
- The banks have lower the ICR temporarily, giving BBP a breather.
- Gas Tariffs in WA have increased, increasing Alinta's revenue.
- They are number of potential bidders in dark corners, although none have made satisfactory bid for the assets so far.
-BHP contract, starting July this year will add 70m extra revenue, not much but anything helps with this overstressed company.

This does not mean the BBP is out of the woods yet, the 2.8 billion facility with bankers and 384mil they still owe to BNB liquidators is a problem, there is no guarantee, but considers the upside if BBP do survive. GPG is headed by an very seasoned investor they don't buy a company without believing the company can survive.... but then I could be wrong.
Click to expand...

A broker has stated that to me that the recent upturn will be BBP saviour. Stating that he is heavily buying at only 5% of book value. He does not expect any real upside until BBP renegiotates their debt arrrangements with the banks in Sep09. Naturally if we have another dip in the economy they may not survive. Yet he likes his odds.

:2twocents
 
Its the end of September and debt negiotiation has been extended to mid october. If these negiotations fall through what will happen to BBP and share price? Will it collapse? Or if the negiotations suceeded would the share price go through the roof? please post your opinions

Cheers Michael
 
Limited research, but if loan negotiations break down, it is all over for the share price. But, the economy is looking good, BBP has good assets, and with some luck can get through though it will take a few years to get back to something reasonable.

Based on what has happen to BNB, the banks have preferred to keep these companies going to sort out asset sales instead of foreclosing, though BNB has no equity value left.

And not as bad as BBI which has some hybrid shares which have a greater face value than the market cap.

Fingers crossed and if loan is sorted out, maybe worth buying a few and putting in the bottom draw for a few years.
 
The following is from the annual report -

BBP has several business critical issues that it is facing over the near term. These include the restructuring and or
settlement of financing arrangements within the Group and the management of the impact of the North West Shelf Joint
Venture (NWS) gas supply arbitration. The Directors acknowledge that there is significant uncertainty over the ability of
BBP to continue as a going concern until these issues are formally resolved. With an understanding of status of the
restructuring negotiations and BBP’s expectations on the resolution of the NWS price dispute, the Directors are of the
opinion that the accounts are correctly prepared on the basis that the Group is a going concern, If for any reason BBP
was unable to successfully resolve its current negotiations on any of the above issues within the range of BBP’s
expectations, BBP may not be able to realise its assets in the ordinary course of business.

And also

35. Net assets per security
30 June 2009 (1.48) 30 June 2008 (1.05)
Net tangible assets per stapled security
Net assets per stapled security 2009 1.31 2008 1.92
BBP has negative net tangible assets per security of -$1.48 (2008: -$1.05). This is primarily attributable to the
acquisition of the Alinta retail business during the 2008 financial year. The nature, and value, of the retail business is
in its brand position as the pre-eminent gas retailer and its customer base (both existing and potential future growth).
This business inherently is different to the existing power generation business as it relies on these characteristics to
produce cash flows as compared to tangible assets such as power plants that characterise the power generation
business.
While the acquired intangibles and goodwill of the retail business in particular represent future economic value to the
Group, they are deducted for the purposes of calculating net tangible assets per security. Net assets per security at
30 June 2009 was $1.31 (2008: $1.92).

Looks like BBP is going backwards, though debt has reduced with some asset sales and still has the impact on the coal fired power stations of any carbon reduction scheme the Government implements.

High risk which may pay off long term.
 
We are back! Has anyone got any views on the meeting today??

A name change and debt restructuruing.
 
I think it's postive and BBP will be able to continue as an ongoing concern,

They have pretty cancelled 80% of their debt to BNB parent on the 400 million loan, and it looks like banks will grant the company the reprieve it needs, and the NWS gas arbitration has come to some form of conclusion even though its a 130 million extra charge on BBP. At this point I believe there is at least enough income to service their debt.

The biggest I am worried about is how the recently failed CPRS deal, which will be introduced again next year, will impact on the book value of the company.

Any thoughts on that?
 
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