aet&d notes - ex-beppa holders, page-7

In its current form PIH appeared to be paying out at somewhere in the order of 31% as opposed to BIPs payout ratio of 60-70% leading to somewhere in the order of $145m in retained earning each year to cover paying down additional debt etc (also somewhat as a hangover to justify the current price). Future earning would also likely to go up at 3-5% per year or in most cases 20% to recover pre GFC levels and inflation.

The devil in the detail with this merger appears be about whether one thinks that most of the future growth will occur in assets such as DBCT, Westnet Rail, IEG etc and whether PIH could realistically fund this without access to a BAM type parent entity ($1B-$2B). PIH might be able to, but it would probably require either dilution and/or reduced dividends to fund construction.

I would also like to see notes and debt funded on a longer term basis to take advantage of current conditions - BAM seem to be hinting at trying to take care of that in their investor briefings.

BIP owns 40% of PIH which was bought at discounted levels. A merger still exposes existing PIH members to most of the upside on existing assets. Although PIHs contribution to EBIDTA, FFO is probably higher than the merger conversion price offers, one must remember that BIP isnt really getting credit for these assets yet either rather their share price seems to just reflect BBIs recapitalization price. Samuels analysis kind of misses the mark as it doesnt really compare relative earning contribution just buyout prices.

Not all BIPs assets are doing great at the moment eg timber but there is no reason to think that this will not recover (offering further upside). Furthermore, BAM offers access to new projects in the coming years at nominal cost (as they own such as large proportion of BIP it in their interest to transfer at cost). I think they have mentioned a large solar farm and a number of Public Private Offerings coming BIPs way in the next five or so years.

PIH could probably increase its dividend a bit more and stay in its current form quite happily, but I think there is probably less risk in joining the darkside or taking the money. The choice really being driven by the size of your holding ie if you dont have many shares the overseas holding costs may not be worth the trouble. Given whats happened over the past few years I am not sure that a Bermuda listing offers considerably less protection than the ASX.

One might see the BAM-BIP relationship as similar to that of Babcock-BBI but the nature of payments doesn't seem to present the same kind of issues with regards to stripping and flipping assets.

We dont really now the full nature of the QIC dispute, but it may be simply that they have a buyout clause which makes it more attractive for them to acquire the remainder of the asset at Grant Samuels quoted price rather than let BIP have it.

The top 334 holders own 95.05% of shares (or slightly higher with BIP/BAMS recent purchases). Its somewhat of a guessing game but the recent release hints that the big players may be tipping things towards a > 90% register. But one could just wait until after the initial scheme vote to see if things are heading that way.

my 2c worth.