BBI 0.00% $3.98 babcock & brown infrastructure group

bbi article in today's australian

  1. 394 Posts.
    Great to see an article that actually applies some logic to the subject rather than just scaremongering. It may not sell as many papers, but will win respect from the rational thinkers out there.

    Here's the link:

    http://www.theaustralian.news.com.au/business/story/0,28124,24687340-5001641,00.html

    Here's an extract:

    Given there is no cross-collatoralisation with Babcock & Brown, there is a quite reasonable case which says the soundest of the satellites can sustain commercial life even after the collapse of the Babcock death star.

    Indeed, BBW and BBI might well benefit from Babcock's demise as it would speed the migration of the headstock management into the companies which own the assets, and permanently staunch the outflow of fees.

    This is not to diminish the nature of the life-threatening complexities ahead for BBW and, more particularly, BBI. It is only to suggest that those challenges might just as easily be faced on their own as under the banner of Larkin's tainted enterprise.

    Based on share price performance, the market seems to have decided BBW has some chance of survival while BBI is little more than a liquidation prospect.

    BBI closed at 2.8 cents a share last night, which means it is carrying debts of $9 billion or so on a market capitalisation of just $60 million. On Wednesday, Moody's downgraded the BBI family to Ba2 and signalled further cuts to come.

    And yet, the company recently sold half of just the New Zealand assets of Powerco for $1 billion, a price the equivalent of 25 times free cash flow.

    Now if you valued the whole of BBI's portfolio on that basis, its equity would be worth maybe $5billion. And the thing is, there is no particular reason not to use that sort of metric as most of BBI's assets are monopolies with EBITDA-to-interest cover ranging between 2.3 and 2.5 times.

    Those ratios would have to halve for BBI to be in breach of covenants, and that is an unlikely outcome given the individual price regulators would have to breach agreements to effect lower pricing.


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    By the way $5billion in equity equates to Net Assets per share of over $2.
 
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