Here is the e-mail I sent this morning - I spoke to his PA who...

Here is the e-mail I sent this morning - I spoke to his PA who was most amiable.




ATTN: Raphael Arndt
Head of Infrastructure - Future Fund

Dear Raphael,
Further to the article in the Australian (dated MAR 19), it suggests that the FF is considering increasing its investment in infrastructure from the current 1.9% of the total FF portfolio. I am writing to you to make a suggestion for a possible infrastructure investment that the FF may/maynot already be looking at. (BBI - Babcock and Brown Infrastructure)

I will not go into detail about the company - you are more than capable at viewing their annual report. I will however point out some basic info that is not in the report.


Of current significance is that 2 of the major holders of BBI are:

Deutsche Bank 5%
Babcock and Brown (BNB) 8%

Both are distressed sellers. Deutsche Bank is currently selling their shares in BBI at any cost. There is speculation that DB have been instucted to reduce their Australian Portfolio, as their capital is required elsewhere.

BNB has been voted into admin by the Bond Holders, and no doubt the administrators will be looking at unloading BNB's shares in the satellite companies to satisfy BNB creditors. These BNB administrators have NO recourse to BBI's assets. (I am sure you are aware that there are no links between BNB and BBI - other than that BBI pays BNB a management fee). It is a common misconception that the companies are linked, and BBI's IR informs me that they are looking to ensure a name change once the BNB management rights are dealt with.


OVERVIEW

BBI
manages 13B of high quality infrastructure assets
Current SP $ 0.04 mark
Current NTA per share is $1.00

There are 2 outstanding bond issues at the moment. SPARCS and BEPPA. You will notice from recent announcements that any concerns regarding these bonds have been dealt with. The major issue at the moment is the approx 900M of corporate debt (recourse) that is being proposed to be paid down via future asset sales. The whole current uncertainty with BBI's business model revolves around the lack of freedom in credit markets. These assets are highly prized, and upon your further investigation, I am sure that you will see that they will have no problem selling them.

Currently DBCT and PD ports are on the market and are both expected to fetch book value or greater. BBI has received unsolicited interest in its assets. Recent sales (past 6 months) have achieved book value or greater.


BASIC PROPOSAL

My suggestion is for the FF to:

1/ contact DB and the BNB administrators to aquire their shares in BBI at $0.05 (total outlay approx 15M)
2/ refinance BBI's corporate debt in the form of accepting prefferential bonds (at for arguments sake 10% and maturing JUL 2012) on condition that they make asset sales. E.G. After the sale of DBCT (for which there is competition amongst buyers) there should be about 300 to 500M of corporate debt outstanding.

So for an outlay of 15M, plus accepting 400M of secured bonds at 10%, the result by 2012 should be:

Shares 180M
Dividends 3.5M
Bond interest 120M

By the time that FF's Bonds mature, the credit markets will have relaxed somewhat, and my estimation is that the shares should be back at levels around $0.60 and paying dividends (with a NTA per share of $1+), making FF's approx 300M shares worth approx 180M.


These are obviously very rough figures.


I would be interested in your feedback.



Many thanks for your time.

Best regards,