Corporates: BBI, Elders

  Elders has done it and & #160;Babcock & #38; Brown Infrastructure is heading down the same route.The predicaments were the same: huge debts, inadequate cash flow and capacity to service them, let alone repay them.Both groups adopted similar approaches to trying to save a sinking ship.As a result shareholders are going to be heavily diluted, perhaps to the point of almost being wiped out, by recapitalisation moves by both companies.Elders is in the better position, because it has done its deal, even though the about to happen issue will be done at 15 cents, a massive 62% discount to the last market price of 39 cents. & #36;400 million or so will be raised from the market, another & #36;150 million from retail shareholders.Elders will cut debt to a gearing of 14%, but there are additional costs with no dividends expected for up to three years.But for Babcock & #38; Brown Infrastructure (BBI) the future looks rougher for shareholders.There's & #160;the potential for shareholders to be all but & #160;wiped out in the mooted & #160;recapitalisation that is meant to avoid the group collapsing early next month. & #160;BBI's shares dropped 22% Friday to & #160;6.1c after it exited a trading halt because the ASX would not allow it to remain halted while negotiations on the refunding deal continued.BBI & #160;directors warned that & #160;a potential placement & #160;to an unknown & #160;private equity group could see & #160;the value of existing shares and hybrid securities & #160;lower than recent trading prices due to the amount of dilution involved, particularly with converting the hybrids. The & #160;EPS hybrids ended down almost 30% at & #160;11.4c.The fund said there was no assurance that the interim & #160;agreement would be turned into a final deal with the unknown private equity group.The company revealed debts of an almost hard to believe & #160; & #36;9.1 billion in & quot;proportionate debt & quot; and & #36;1.2 billion in corporate debt facilities.Of that, about & #36;2.7 billion is due to mature in the & #160;2010 and 2011 financial years, including & #36;300 million due next & #160;February.At the moment that is too much money for what little the company has available. & quot;Until recently, BBI has focused on sales of significant assets as its primary strategy for achieving debt repayment, & quot; directors said in the statement. & quot;However, achieving asset sales in the current environment on terms which would realise sufficient funds for the necessary reduction in BBI's debt is proving difficult, with timing and value outcomes uncertain. & quot;Based on present circumstances, BBI's current asset sales programs (net of expected disposal costs and taxes) are unlikely to realise sufficient proceeds to meet BBI's FY2010 debt maturities. & quot;The & #160; & #36;300 million of corporate debt due next & #160;February was a surprise and more than previously suggested.The company has been trying to sell its PD Ports business in Britain and part of the huge Dalrymple Bay coal exporting facility in Queensland without success.It's claimed the ports business has debt due next month with could trigger a default across the entire group, so the & #36;205 million in loans needs to be paid or rolled over. & quot;The terms of a transaction with the potential cornerstone investor have been discussed (although the structure and details of any such transaction are not yet finalised). & quot;A comprehensive recapitalisation on the terms discussed requires the consent of existing lenders and BBI has approached the lenders to obtain their consent to the recapitalisation. & quot;It is likely that there will be a requirement for full conversion of EPS and SPARCS in advance of, and in order to facilitate, any equity recapitalisation and that the ownership interests of BBI ordinary securityholders, and EPS holders and SPARCs holders post-conversion will be significantly diluted by the recapitalisation. & quot;The transaction mechanics, including any conversion of hybrid securities and the basis on which it would occur, have not been determined. & quot;The value outcomes of the transaction for BBI ordinary security holders, EPS holders and SPARCS holders are not certain and may attribute a value to those securities that is less than face value or recent trading prices. & quot;Furthermore, associated sales of assets may be at amounts lower than their current book values, & quot; directors said.In other words, the pain for existing holders of BBI securities is going to significant, and on-going.By contrast, Elders has taken its lumps with the refinancing deal about to be done after Friday's announcement.But the price to be paid in terms of the share price won't be known until the issue is done.Some reports claimed it could have been done at 25c, instead of 15c, but with the company in no position to argue, it had to offer the big end of town what could be the chance to make a fat profit when the shares are & #160;re-listed.The capital raising was announced & #160;after the market closed Friday.The group also reported a & #36;415.4 million net loss for 2008-09, but forecast a rebound in net profit from continued operations of & #36;55.7 million this financial year.The company said that loss came from: total underlying EBIT of & #36;16.8 million for the year to June; & #160;underlying loss of & #36;26.9 million after tax from continuing operations, within guidance; non-recurring items after tax of & #36;388.5 million arising from the restructuring and impact of market conditions on asset valuations.The capital raising completes a funding process that has involved selling 10% of its banking joint venture to Adelaide and Bendigo, which will control 60%, selling its insurance arm to QBE (which will also buy shares in Elders for a stake that could end around & #160;9%) and now the highly dilutionary issue.Existing & #160;holders though will get a chance to restore some of their stake if they want to.All up Elders has raised around & #36;700 million which will see the company's net debt reduced from & #36;997 million to about & #36;200 million.The equity raising consists of a & #36;400 million fully underwritten conditional placement to institutional investors and a share purchase plan of up to & #36;150 million for retail shareholders. Each shareholder will be able to subscribe for up to & #36;20,000 of new shares, and more if there is a shortfall.Shareholders must approve both deals at an extraordinary meeting on October 15.Under the debt package, Elders will also suspend distributions to hybrid investors for two years, and dividends will not be paid for three years. & #160;  

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