Deal reduces BBI investors to a bare mite
Sydney Morning Herald
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 $1 million. The deal was deemed fair and reasonable by an independent expert yesterday.A majority of shareholders must approve the massive dilution, cutting their ownership from 100 per cent to less than 0.1 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 4c a share distribution, worth a total of $104 million.The independent expert Grant Samuel found the deal, which would eliminate $1.2 billion in corporate debt BBI is struggling to repay, was fair and reasonable for shareholders because the dividend fell within its valuation of nil to 14c for each security. It also found the deal was fair and reasonable for institutions that invested $779 million in BBI's exchangeable preference shares, although they stand to receive about 37c in the dollar.More than 75 per cent of these investors must vote for the deal for it to succeed.BBI is struggling under a total of $9.2 billion in debt, and Grant Samuel found asset sales were not 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 the US electricity transmission line company Cross Sound Cable, carried so much debt they were worthless.The recapitalisation has been proposed by the Canadian company 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.Yesterday BBI also announced commitments to an institutional placement of $625 million for a 35 per cent stake in the company. The placement is being managed by Credit Suisse and Macquarie Capital.The report warned 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.UBS's infrastructure analyst, Scott Kelly, said BBI had been exploring options for the past 12 months.This is the only option that has been deemed valid. 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 convert to regular securities, up to 842 billion new securities will be issued, capturing $285 million of the estimated $286 million in value available for regular shareholders.The remaining $1 million would be held by existing shareholders, who are also being asked to participate in a $250 million capital raising as part of the recapitalisation.Shares fell from 5.3c to 4.6c after they resumed trading yesterday.
© 2009 Sydney Morning Herald
Share This