buy the weakness, page-29

I think the recent selling is in relation to an article about companies "refinancing".
It's interesting that they mention "Valad" considering that their debt exposure is fairly mild compared to many stocks.
This is a typical press article that makes its point on stocks like Babcock and Brown and the rest of the market follows like sheep.


http://business.theage.com.au/70-companies-in-line-for-costly-refinancing-20080617-2s7v.html

70 companies in line for costly refinancing

June 18, 2008

LIKE home owners, Australian companies are paying more for debt, threatening earnings for property trusts and infrastructure funds.

Australia's biggest companies are paying up to 1.2 percentage points on top of the rate at which banks lend to each other. And their smaller counterparts are being forced to pay between 1.5 and 2 percentage points above the going rate.

According to Goldman Sachs JBWere equity strategy analyst Hamish Tadgell, more than 70 major listed companies will have to refinance in the coming year.

Of these, the Macquarie DDR Trust must obtain 94% of its market capitalisation — or $439 million — at the much higher rates.

A further 23 companies, many of which are property trusts, infrastructure funds and consumer discretionary stocks, must obtain loans of 15% or more of their market value.

They include Bunnings Warehouse Property, Envestra, Amcor, Mirvac, Goodman Group, Harvey Norman, Valad Property Group and Billabong International.

"While the ability to refinance will be company specific, the cost of refinancing has clearly increased, and in an environment of slowing economic growth, adds to earning risk," Mr Tadgell said in a report released yesterday.

Macquarie Group's research team, led by head of economics Richard Gibbs, said profitability was almost certain to decline — almost across the board.

"Softer consumer demand, rising input costs and a more challenging funding environment all point to deteriorating profits," they said, in their Global Vision report.

But Mr Tadgell said the companies that could refinance, even at a higher rate, were the lucky ones.

Besides the well-publicised troubles of companies such as Allco Finance Group, MFS and Centro Properties Group, several other companies had been forced to rethink their strategies because of tougher credit market conditions.

They included Foxtel, Austar United Communications, Moly Mines, Primary Health Care, and Crown, which recently dropped plans to build a Las Vegas casino because of the cost.

Yesterday, the yield on one-year Australian bank bills rose to 8.338%, the highest recorded.

The yield on three-month Australian bank bills was 7.818%. The yield peaked at 8.113% in March, but was as low as 6.413% in the past year.

The rapid gains mean Australian companies that must refinance are paying between about 8.6% a year and 10.3% a year on their debts.

And Mr Tadgell said, even though credit market conditions had improved since mid-March, there was no guarantee they would keep improving.

"Equity markets continue to wax and wane," he said. And the "fear of the next wave of financial distress" could send them crashing again.

Mr Tadgell said the market would continue to avoid companies with high levels of debt, near-term refinancing requirements and complex structures — an expectation illustrated by Babcock & Brown's recent share price plunge.

But companies with overseas assets, and loans in currencies such as the US dollar, would do better because of the much lower interest rates payable on such loans.

Those companies included Foster's Group, Brambles, News Corporation, Sonic Healthcare and James Hardie Industries.