It's a couple of weeks since the banks were briefed by BNB. There's 25 banks and if any one of them had serious problems with BNB we would have heard something already. You can't keep 25 banks quiet. Therefore the stock price has already started to recover.Maybe a good rebound especially when BNB announce their lenders are all OK.
can you give a concrete example of:
1. How Babcock & Brown uses this kind of valuation?
2. How a change in asset value is accounted as earnings? How can something which should appear on a balance sheet be transferred to a profit and loss statement?
In this period there were $2 billion of property acquisitions (at cost).Real Estate Held as Investment Property
Initially, investment properties are measured at cost including transaction costs. Subsequent to initial recognition,
investment properties are stated at fair value. Fair value is based on active market prices, adjusted for any difference
in the nature, location or condition of the specific asset or where that is not available, an appropriate valuation
method which may include discounted cash flow projections and the capitalisation method. Discount rates and
capitalisation rates are determined based on the Company’s industry knowledge and expertise and where possible,
direct comparison to third party rates for similar assets in a comparable location. The fair value reflects, among
other things, rental income from current leases and assumptions about rental income from future leases in light of
current market conditions. It also reflects any cash outflows (excluding those relating to future capital expenditure)
that could be expected in respect of the property. Gains or losses arising from changes in the fair values of
investment properties are included in the Income Statement in the period in which they arise.
Regarding the "$100 million fair value movement on investment property", this relates to the following accounting policy (excerpt from 2007 Annual Report)
In this period there were $2 billion of property acquisitions (at cost).
The adjustment to book value (fair value) amounted a net gain of $100 million (5 percent gain) on this entire portfolio of $2 billion in property acquisitions.
The $100 million adjustment does not relate specifically to "an uplift arising from the development of an Asian self storage portfolio.......and an uplift in the value of the BNP Residential Property portfolio in North America."
I managed to average my price down to $14.99 so I hope it can hold over $15 and then continue on the wave upwards. I'd like to see $20 by end of June.
I think the "big 4" aussie banks are smaller players in the 25 bank syndicate which provides the $2.8 billion revolving line of credit to BNB. Only 3 months ago BNB allowed 5 more European banks to join the 20 others, and increase the facility from $2.3 billion to $2.8 billion. This suggests exposure of $100 million per bank.I think the review of BNB will never eventuate by the banks....if BNB falls, the big four will take another hit from asset writedowns....similar effect from CNP....Therefore....regardless...the banks will just keep it float on top of the water....
I think the "big 4" aussie banks are smaller players in the 25 bank syndicate which provides the $2.8 billion revolving line of credit to BNB. Only 3 months ago BNB allowed 5 more European banks to join the 20 others, and increase the facility from $2.3 billion to $2.8 billion. This suggests exposure of $100 million per bank.
Recently when buying Angel Trains, BNB had no troubles organising another banking syndicate to raise 2.8 billion pounds, comprising the following financial institutions: "BNP Paribas, Banca IMI SpA, Calyon, Commonwealth Bank of Australia, DEPFA Bank plc, Dexia Credit Local, HSH Nordbank AG, ING Bank, KfW IPEX-Bank GmbH, Lloyds TSB Bank plc, Mitsui Banking Corp, Natixis, NORD/LB Norddeutsche Landesbank Luxembourg S.A., RBC Capital Markets, The Royal Bank of Scotland, Sumitomo Mitsui Banking Corporation, Unicredit Market & Investment Banking and an institutional funds manager, Queensland Investment Corporation."
Angel Trains is now owned by BNB European Infrastructure Fund, an unlisted fund. The 2.8 billion pound loan to buy the asset does not appear on the BNB balance sheet. However the 3.6 billion asset of Angel Trains will be included as "Assets under Management", which at 31 Dec 2007 stood at over 70 billion dollars, surely now heading for 100 billion dollars by the end of this year.
I'd say BNB is aiming for the following headline numbers in the next year or two: 100 billion dollars of Assets under Management, and 1 billion dollars profit.
Mr_T,
Is there anything else that puts you off BNB apart from the revaluation? I've seen many posts from you and they all refer to the validity of the $100m revaluation but you don't mention anything other than that. I agree that it would be nice to see more details about what was revalued by I have some faith in the audit process and that they would be ensuring that the assets were valued using a fair process.
I'd also like to clarify that when property is revalued the change in value must be taken to the P&L (either as income or cost). In the old days it would be taken to reserves but that is no longer the case. I think this is important to note because it seems as though some people think that BNB are engaging in 'dodgy' accounting practices, but this is not the case.
If BNB is renting out these properties then they would be valuing based on DCF - taking expected occupancy, average rates and then projecting them out over a long-term timeframe (say 10 years plus). The events of the last year are not really going to affect the long term value of such properties. I guess it all depends on what timeframe you're working to - I'm looking at the long term so will hold my shares for now.
I'm interested to hear about what else puts you off Babcock other than the suspicious reval.
Kloid
Bollocks. That real estate is valued by DCF is BNB's spin, it isn't reality. The rent you collect on your estate can remain the same, if the market values your property at less than it used to, then it is worth less, you can scream DCF till you are blue in the face. Its worth what people are willing to pay to buy it.
BNB revaluing real estate is a symptom of a greater disease - delusion and opaqueness. I have raised many other points in my posts, sometimes copying articles of Michael West, Crikey, etc. Bottom line is the model BNB (and others) use is dead. The concept of spinning off satellites and extracting huge fees from them just isn't going to work anymore, people are not interested in putting money into satellites that pay huge fees. So whilst their existing satellites will continue to exists (with lower fees as fees are partially a factor of satellite market value) there just won't be new ones under the current model. Which will put a major limit on that aspect of profit growth.
Other point that has been made over and over again is that as far as operating cashflow goes, they are clearly in the red. What kind of profit is that? In the old says, a negative cashflow from operations might have been tolerated, thesedays the market isn't so wiling to forgive. Which can only be a good thing.
Anyway Alan Kohler summed it all up recently in this article:
http://www.businessspectator.com.au/bs.nsf/Article/Beautiful-plumage-FMSYG?OpenDocument
I prefer to have independant thought than have a bunch of journos tell me what to think. Clearly the banks have no problem with the BNB as evidenced by the recent multi-billion dollar financing of the Angel trains acquisition followed today by the news that the debt covenance clause will be dropped and there won't be a review of the company's operations.
As to DCF property valuations being "bollocks", a DCF valuation would be more relevant for rental properties. The market valuation would only be useful if they plan to sell, which unless you know something that I don't is not the case. What evidence do you have that the rentals on these particular properties have gone down so much?
Kloid
It's done by the fees they charge for doing deals like that Angel Trains purchase. Also the revenue streams from "Assets under Management" are huge due to the 75 billion of assets.1 Billion dollar profit? You have got to be kidding. From what? Revaluing BNB's stake in Tricom?
It's done by the fees they charge for doing deals like that Angel Trains purchase. Also the revenue streams from "Assets under Management" are huge due to the 75 billion of assets.
An increasing percentage of these assets will go off balance sheet into unlisted funds. BNB will get a large one-off fee for setting up these funds, and a regular funds management fee.
Investment banking can be very profitable given the trust of bankers and institutional investors.
BNB have a huge pipeline of wind assets. They will sell 3 billion of this soon, but that will be replaced by another asset of similar magnitude when the development pipeline brings it online.
BNB will have to writedown a lot of other assets, like the USA Real Estate, maybe by 100s of millions, and this will affect the profit/loss by maybe 250 million.
I believe BNB do not writedown their holdings in their listed funds. These holdings have halved in value or worse, but I don't think it will affect the balance sheet.
The banks are very worried (I know someone who works in ANZ and told me that the concern is not minor), but they realise things might be a whole lot worse if they enforce the covenant, eg the market loses all faith in BNB and/or BNB is forced to into firesales.
Careful mate, you seem to be saying that you know someone in ANZ who is part of the review committee, and if he told you this non-public information, that would likely be a criminal offense.
Institutional investors need funds like this, because:Lets follow this to its natural conclusion.
Who is going to buy/own these unlisted funds? Why would people buy them if these funds pay such large fees to BNB and so erode the returns of the funds?
Institutional investors need funds like this, because:
1. an individual investor cannot afford to buy one of these huge infrastructure assets
2. an individual investor wants to own a diverse portfolio of infrastructure
3. an individual investor cannot organise a large banking syndicate to obtain a geared investement in infrastructure.
4. infrastructure is usually a monopoly with steady cash flow
BNB delivers this for a price, and their competitive advantage in this market is based more on the quality of the deals they make than the level of fees.
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