$118m haircut looms for BBI investors
The Age
Tuesday October 13, 2009
BABCOCK & Brown Infrastructure investors with shares worth $119 million are being asked to back a proposal that leaves them with a stake in the company worth just $1 million, after the deal was deemed fair and reasonable by an independent expert yesterday.A majority of shareholders must approve their enormous dilution, which will reduce their ownership from 100 per cent to less than 1 per cent, in the proposed $1.8 billion recapitalisation of the infrastructure manager.The deal for shareholders, which is due to go to a vote on November 16, will be sweetened by a 4-a-share distribution worth a total of $104 million.Independent expert Grant Samuel found that the deal, which would eliminate $1.2 billion in corporate debt that BBI is struggling to repay, was fair and reasonable for shareholders because the dividend fell within its valuation of zero to 14 for each security.It also found that the deal was fair and reasonable for major institutions that invested $779 million in BBI's exchangeable preference shares, although they stand to receive only about 37 in the dollar.More than 75 per cent of these investors must vote for the deal for it to succeed.BBI has been struggling under a total of $9.2 billion in debt, and Grant Samuel found that asset sales had not been enough to meet a $300 million debt repayment due in February.The report found some assets, including PD Ports, operator of Britain's third-largest port, and US electricity transmission line Cross Sound Cable, carried so much debt they were worthless.The recapitalisation has been proposed by the Canadian-based Brookfield Asset Management, which is paying $625 million for a stake of 35 per cent in BBI and a further $295 million for 49.9 per cent of BBI's prize asset, the Dalrymple Bay Coal Terminal.BBI also announced yesterday commitments to an institutional placement of $625 million for a 35 per cent stake in the company, managed by Credit Suisse and Macquarie Capital.The report advised that the recapitalisation was a better alternative than insolvency, but it warned that, apart from the dividend, there were few benefits for existing shareholders."They will hold a trivial percentage of the expanded securities on issue and will have only very limited exposure to any future upside in BBI," the report stated."This is the only option that has been deemed valid," UBS infrastructure analyst Scott Kelly said. "Given the circumstances and the risks, the proposal appears to be reasonable."The expert estimated holders of BBI's exchangeable preference shares stood to almost double the existing value of their holdings.When these holders convert to regular securities, up to 842 billion new securities will be issued, capturing $285 million of the estimated $286 million in value available to them.BBI shares fell from 5.3 to 4.6 after they resumed trading yesterday.
© 2009 The Age
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