February 26, 2008 It is no doubt niggling Asciano boss Mark Rowsthorn that he is struggling on the home front to meet the mortgage while his former partner Paul Little of Toll Holdings has gone off on a shopping spree around Asia.
When they split up last year, Little left Rowsthorn with all the debt and a Macquarie-inspired corporate structure, and Rowsthorn promptly made things worse by making a move on Brambles, a company three times Asciano's size, just before the top of the market.
There is a lot of debt in Asciano and that's why the stock price has been shellacked. Toll had been on an acquisition binge ever since it listed and his final shopping item was Chris Corrigan's Patrick Corporation, a company the same size as Toll.
It was all rollicking good bull-market fun. But things have been awfully quiet around Asciano since Christmas. The latest news was a little release to the ASX saying Asciano had asked the regulator, ASIC, for relief on reporting its interim results. It was given time and now has to report by March 12.
The rub is that this will be its first report since demerging from Toll.
While Little has been shopping harder than a Beverley Hills housewife, announcing transport and logistics acquisitions across Asia, the news vacuum at Asciano has been galling for shareholders.
They have a bit more to go on than the prospectus alone. There was a company presentation, and accompanying 5% earnings downgrade on December 11. A few asset sales were forecast: plans to exit the freight rail business in Victoria and NSW and the Pacific National operations in Tasmania.
And to the relief of the market, Rowsthorn conceded his putative $20 billion takeover bid for Brambles was off the agenda. But that left him with a $700 million stake in Brambles to fund. He sold down from 4.1% to 3.44%, rescuing $100 million, but the financing costs on the rest have left him hamstrung as Brambles' share price also tanked.
Asciano, despite its suite of quality infrastructure assets, has been downgraded savagely by the market and it can't be helping his negotiations to refinance with the banks.
At the December briefing, Rowsthorn's finance man, Austen Perrin, revealed the net interest on carrying the Brambles stake was $335 million to $340 million. On top of the company's $5.2 billion in syndicated bank facilities and $108 million bank guarantee facility, Asciano's leverage may not be crippling yet but it would appear to be critical.
There will be a large cashflow shortage this year, perhaps a cash shortfall in the order of 40% of shareholders' funds.
In the December presentation, Perrin and Rowsthorn said average maturity of their borrowings was "over three years'' and nearest maturity was $258 million to be rolled in May. May is creeping up on them. And while they noted that the majority of Asciano's debt was hedged for the next two years, they only disclosed the `average maturity' of their debt was three years, rather than the `weighted average maturity'.
We don't know what lumps of debt are due when and on what terms.
Thankfully for shareholders, because the assets are high grade the banks are unlikely to enforce any breach. As revealed in the Allco numbers yesterday, there was a $900 million chunk of debt which could be called by the banks, given the fall in Allco's market cap.
Despite Allco's death spiral, the banks are loath to call in the receivers just yet. Big writedowns are not a good look for their own profit numbers. Asciano is no Allco yet - net debt-to-equity is in the vicinity of 185 times, while there is no cash interest cover and a looming cash deficit in the order of $1 billion.
No doubt the asset sales program will be ramped up. Still, the vultures of private equity have vanished from the market, the likes of Babcock and Macquarie have their own issues and don't spend like they once did, and asset sales targets must be under pressure.
Against the backdrop of rising rates, market distaste for leverage and Asciano's information vacuum, this one will be a white-knuckled ride for shareholders.
