AIO 0.00% $9.13 asciano limited

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    Ports giant Asciano on the skids

    November 12, 2008

    PRESSURE is building on Asciano to deal with rejected US takeover predators after the port and rail group's shares went into free fall and were placed in a trading halt.

    Asciano's shares plunged by $1.03, or 59.9%, to 69¢ before the trading halt was called, and the Australian Securities Exchange queried Asciano about the share fall. The company's stapled securities reached a high of $11.43 shortly after listing in June last year.

    Asciano in August rejected a $4.40-a-share, $2.9 billion takeover offer by US investors TPG Capital and Global Infrastructure Partners, arguing the offer undervalued the business.

    Citigroup analyst Sanjay Magotra, who issued a damning report on Asciano, which helped spark the share rout, said any corporate activity would need the support of the board and chief executive Mark Rowsthorn, who has a 10.9% blocking stake.

    "While the board has been reluctant to consider TPG/GIP's non-binding offer of $4.40 per share up until now, it may have to consider all options, including the offer," he said.

    Shaw Stockbroking analyst Brent Mitchell said Asciano would be forced to deal with the private groups. "There's probably no other choice," he said.

    "Asciano's debt is high, and the immediate climate for financing is not good. The path the company is trying to go down (finding funding without losing control of the business) is a difficult path to tread."

    Since rejecting the takeover offer, Asciano has been involved in a "monetisation process", seeking a financial partner to invest in one or more of the company's existing business divisions. The company's high debt of $4.7 billion has made it vulnerable. Asciano's chief assets are the Patrick stevedoring business and rail giant Pacific National.

    In his report, Mr Magotra said Asciano had nothing to show for all its talk, and the deepening global credit crisis had shaved more than 80% off its equity value.

    He estimated that the slowing world economy would cut Asciano's EBITDA (earnings before interest, tax, depreciation and amortisation) by 14% this financial year to $577 million, and by a further 20% the following financial year.

    Asciano would also have to raise an extra $2.1 billion in equity to lower its gearing to the 4.5 times net debt to EBITDA needed to stabilise its ability to repay debt.

    "We like the underlying assets and see long-term value in AIO (Asciano); however, the share price is in no mood to take prisoners," he said.

    In a statement late yesterday, Asciano chairman Tim Poole said the share price weakness did not reflect the company's underlying performance. In the four months to October, the company's EBITDA was up 6% over the same period last year.

    "The (monetisation) process is now well advanced … We expect to be in a position to provide further updates … over coming weeks," he said.

    Mr Poole emphasised that Asciano had 18 months before a major refinancing of its debt was required. The company was in full compliance with its banking covenants and expected to remain so.

    Mr Poole said Asciano was also not contemplating any capital raising, nor had it appointed any advisers to do so.
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