This deal is probably not much better than what could be achieved by a liquidator via administration.
The stock is now overvalued at $0.69
The WBC deal for RHG's "business" (ex loan book) was a classic corporate steal! Let’s see if the other major banks let them get away with it…It's a fundamentally good business.
The fact that the RHG board endorsed the deal shows how desperate they were. My reading is that RHG have no confidence they could continue to fund the existing (new business) and little confidence they can easily refinance the $6bn US XCP
The $250m pending RMBS issue (pricing tomorrow) is a mere side show. So what if it prices at 50bps over BBSW...it's a small drop in the hole of what they have to move
There is no doubt that the funding liquidity crisis is real and effecting everyone globally.
RHG is one of the pronounced victims in Australia. They sell the highest grade MBS (AA+), which have full loan mortgage insurance and still there is little demand for this paper from typically off shore investors. These are dramatic times – how can the ASX rally when there is a real credit crisis which will come home to bite everyone someday soon!
RHG Treasurer should be shot for thinking it was 'smart' to run the short end of the yield curve on long dated assets (equals massive mismatch / refinance risk). This is elementary!
Technically the NPV / FSR of the run-off of the RHG loan book might be worth $150 - $300m (highly dependent on funding spread assumptions and prepayment rates). The prospectus indicated the FSR was valued at $493m at March. Those assumptions are largely not relevant now, unless credit conditions settle and that isn’t looking likely this side of 08’
How value may look:
WBC offer $140m Less trails / loans [$15m] Less corporate debt [$140m] Less restructure costs [$10m] Addback FSR [$200m] – big unknown
Implied equity value [$175m] TSO 350m Value per share (say) $0.50 p/s
Unless another offer looks like emerging, this stock will quickly trade at a discount to its theoretical value if the vote goes through
Good luck!
RHG Price at posting:
0.0¢ Sentiment: Sell Disclosure: Held