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CBD

Missing forms upset Myer float parade 

One essential piece of paperwork has been left out of the glossy prospectus flaunting the retailer Myer's planned $2.3 billion initial public offering.

While the glossy booklets seem to contain enough happy snaps of a former Miss Universe, Jennifer Hawkins, to please many a heterosexual male investor, the lead managers of the float have failed to enclose any application forms.

Did Jen's beaming smile distract Credit Suisse, Goldman Sachs JBWere and Macquarie?

Did the lead managers, who stand to collect up to $70 million in fees, forget to enclose the essential piece of paper?

Apparently not, according to a Myer spokeswoman. She said all the application forms were at the bottom of the boxes that had been sent to brokers with the prospectuses in them.

"In order to find them brokers are being asked to take all the prospectuses out," she assured CBD.

She explained the forms were not in the prospectus because of the various offers being made to Myer staff, Myer One card holders and average punters.

This explanation did not wash with one Myer card holder, who was sent a prospectus, a reply paid envelope and no application form.

ASIC fines CBA

The Commonwealth Bank has been wrapped over the knuckles by the corporate cop for not disclosing the full extent of its LIEs.

The Australian Securities and Investments Commission fined the bank $100,000 yesterday for allegedly failing to properly disclose to the market in a timely fashion the extent of its expected loan impairment expense (LIE) to gross loans.

This all stemmed from when CBA tried to raise $2 billion from the market in December last year.

The CBA blamed its then banker, Merrill Lynch, for failing to tell investors buying into the raising about its expected LIEs when it sounded out the market.

But despite the bungled raising forcing the CBA to lower the price of its second UBS-led raising from $27 to $26 a share, the undisclosed LIEs were not material after all.

"Loan impairment expense is a single-line item in the group's profit and loss statement and cannot be considered in isolation," the CBA chief executive, Ralph Norris, whined yesterday.

He argued it was offset by the bank's strong revenue growth. Apparently a blowout in the LIEs from 0.5 per cent to 0.6 per cent of loans would have had a mere $600 million hit on CBA's balance sheet.

If that is immaterial, one wonders whether a $100,000 fine from Tony D'Aloisio was worth even mentioning in the CBA press release yesterday in which Sir Ralph protested the bank's innocence.

According to ASIC, the CBA only became aware of the $600 million blowout in its full-year LIE at 3pm on the day of the first attempted raising, after it had already asked Merrill to sound out the institutional investors on the proposed raising.

CBA only told Merrill at 3.59pm about the additional LIEs, which would-be investors in the initial raising later baulked at.

At least Sir Ralph was a good sport about it yesterday, noting how "disappointed" he was at the ASIC decision.

Killer deals

Just a fortnight since being condemned worldwide over the massacre of 157 protesters at a political rally, the military dictatorship of the bauxite-rich Guinea has bounced back with some upbeat news.

The African regime's mines minister, Mahmoud Thiam, appeared joyful when he announced the Chinese were looking to invest up to $US9 billion ($9.9 billion) in the country of 10 million.

“We do not doubt our Chinese partners,” Thiam said in a Bloomberg report. “Guinea needs these kind of projects to begin its economic take-off,” reasoned the jovial minister. The Guinea opposition, however, tried to pooh-pooh the happy news.

"First of all, it is immoral, and second, it is illegal for many reasons, the least of them being the massacre that occurred two weeks ago. And the other one is that this junta has not been recognised by any country," an opposition leader, Bashir Bah, told the US Government-sponsored Voice of America news service.

"It is amazing that the Chinese Government ... has set foot into Africa to be dealing with rogue regimes like those ones," he said.

The announcement on the Chinese investment came less than a week since BHP Billiton made its own upbeat assessment on doing business in the wannabe pariah state.

On October 8, BHP's head of aluminium, Jon Dudas, gave a presentation which noted how the miner had "strong government support" in Guinea.

Wired memory

The Minister for Communications, Stephen Conroy, seems to read whatever he can to help expand his knowledge of the telecommunications industry.

One book that appears to have grabbed the senator's interest lately is the tome on the Sol Trujillo years at Telstra, Wired Brown Land?.

The book happened to be penned by the former Optus spin-doctor Paul Fletcher, who is now the Liberal candidate for Brendan Nelson's recently vacated federal parliamentary seat.

At the CommsDay Summit in Melbourne yesterday, Conroy decided to share some excerpts from the book with the audience.

From page 194 Conroy read: “What is good for Australia is a more efficient, competitive and fairly priced broadband market.

That may or may not damage Telstra's share price – in fact there are good arguments that it will not – but in any event Telstra's share price has no value as a guide to good public policy.”

"That's Paul Fletcher, the new Liberal candidate to replace Dr Nelson in the seat of Bradfield," Conroy said. "The sooner that he gets reshuffled into the frontbench of the Liberal Party and takes over as shadow comms minister the better.

We might then start to see some constructive dialogue." Conroy's reading came a day after the Opposition's communications spokesman, Nick Minchin, helped oversee a Senate inquiry into the proposed separation of Telstra.

Minchin, a fierce critic of the Rudd Government's plans to break up Telstra, at the senate inquiry on Tuesday learned for the first time that Australia's second largest telco, SingTel-Optus, was listed on the ASX.

Got a tip? email srochfort@smh.com.au

 

 

Insider

Edited by Jamie Freed

BBI plan could be as good as it gets 
 
There has been a lot of chatter in the market about Babcock & Brown Infrastructure's proposed $1.8 billion recapitalisation plan and its effect on the shareholders and EPS hybrid holders, who will have to take various haircuts as a consequence.

There is no doubt that, in hindsight, the corporate structure of BBI – including plenty of short-term debt on long-term assets as the credit crunch hit – was far from ideal.

One especially nasty aspect of the structure is a particular thorn in the Australian Energy Transmission & Distribution (AET&D) business – on top of the $1.2 billion or so of asset-level debt in that division there is a layer of $518 million of holding company debt.

Both layers of debt hold higher rank than any security over the assets held by the exchangeable preference share (EPS) holders.

Based on valuations provided by DUET – a co-owner of all the AET&D assets except a Tasmanian pipeline – the division could have an enterprise value of about $1.85 billion.

The assets in common with DUET are worth $1.65 billion and the Tasmanian pipeline is worth about $200 million. BBI would argue that is optimistic because DUET's pre-emptive rights over most of the assets have served as a deterrent to potential bidders.

But for the sake of the EPS holders, let's assume there is $150 million of equity value left on top of the two layers of debt. Some EPS holders have argued the equity value is far higher than that – perhaps about $500 million.

But Insider has been told that if BBI collapsed into administration, the holders of its corporate debt would have some claims to the AET&D assets that could prevent EPS holders from receiving full value.

In that case, the 43c in the dollar of value on offer to EPS holders is likely to be better than the potential return from an administrator.

Some EPS holders are grumbling that as part of the recapitalisation deal Brookfield Asset Management will assume management of AET&D and EPS will convert into shares and lose their security over those assets.

But once EPS convert into shares, the holders will be eligible for distributions, which will now be made, sensibly, only from free cash flow.

Based on projections of $133 million free cash this financial year, the recapitalised BBI would have a 7.5 per cent yield.

One reason BBI is so keen to offload AET&D is that the debt maturity profile on that business is shorter-dated than on many of the others.

Getting rid of AET&D will remove refinancing risk, meaning that BBI will not have any debt maturing until 2011 after the recapitalisation.

Hot property tip
 
The Morgan Stanley-owned Investa property group has earmarked about 10 properties it wants to offload in what would be the country's biggest commercial property portfolio float for at least two years.

The price tag is tipped to rise above $1 billion. Although discussions about any potential float are at very early stages, and a range of other options are being discussed with investors, it is worth noting Investa looked at the sale of these assets back in October 2007.

That plan was derailed when the global financial crisis took hold. Insider understands the portfolio will include the major assets leased to Telstra and the State and Federal governments.

The assets include seven properties in Melbourne, the most valuable of which is 242 Exhibition Street in that city's CBD.

In Sydney, the telco's second headquarters at 310 Pitt Street and possibly the 231 Elizabeth Street property and other offices at Macquarie Park would be part of the mix.

But the deal is not tipped to include Investa's 126 Phillip Street skyscraper or the Ark site at 40 Mount Street, North Sydney, the latest six-star, green-star building to be opened this year.

Raiders return

The global giants of private equity – Blackstone, KKR and CVC – have yet to emerge from their slumber in terms of big Australian buy-outs, but that hasn't stopped market watchers from taking note of their recent activities overseas.

Blackstone has raised plenty of eyebrows with its planned purchase of AB InBev's theme park unit for at least $US2.3 billion ($2.5 billion) in the year's largest private equity deal.

And CVC is reportedly working on a separate, €1.4 billion ($2.3 billion) deal with InBev to buy the brewer's assets in Central and Eastern Europe.

That's not to say that cutting deals is in any way as easy as it was in the boom times. It is said to have taken Blackstone six months to line up $US1.4 billion of debt for its deal and the equity components of recent deals are much higher than in the past.

But asset prices are also much lower in the weaker global economy and so it could be easier than usual to grow returns as the economy rebounds.

In the Australian market, there is a lot more talk of private equity selling or floating assets than buying them.

Private equity failed at recent attempts to cut deals with Asciano, Energy Developments and Emeco, although Catalyst has struck a controversial deal to take a stake in PearlStreet.

And CHAMP is nevertheless set on raising money for a new buy-out fund. More than one observer has noted that private equity's very existence is based on doing deals, so the funds cannot remain idle for much longer.

For that reason, many think a revival of buy-outs could be just around the corner, with mining services predicted to be one of the more targeted sectors.

jfreed@smh.com.au

 

Briefs

Fertiliser

Elders sale delay Elders said the sale of its fertiliser joint venture may be delayed until next year. The company had said last month the sale of Hi-Fert, owned by Elders and AWB, had progressed well, with indicative offers received. Elders has been selling assets to reduce debt as it focuses on its rural services unit.

Manufacturing

Ansell on track The condom and glove maker Ansell said its first quarter was stronger than expected and its full-year earnings would come in at the top end of expectations. Ansell, which has its operating currency in US dollars, said favourable exchange rates, cost cuts and higher glove sales would help its earnings for the year to June 30, 2010, to the top end of its guidance.

Markets

Endless Solar IPO The water heater maker and distributor Endless Solar has confirmed it plans a public float later this year. The Sydney-based company has sent a letter to shareholders outlining its plan, but there were no details on its performance or the size of the float.

Superannuation
 
Australia No.2 Australia has ranked second in the world's first study of national pension systems, coming behind the Netherlands but ahead of Sweden and Canada. Australia scored 74 out of a possible 100 points. The comparison focused on the integrity, sustainability and adequacy of pension systems.