bbi eps limited

Te recent BBI EPS Limited annual report shows that BBI EPS owns the old Alinta business including:

• Western Australia operations and maintenance business (100%);
• Tasmanian Gas Pipelines (100%);
• Alinta Gas Networks (74.1%);
• Dampier to Bunbury Natural Gas Pipeline (up to 20%); and
• Multinet Gas Network (20.1%).

The balance sheet shows assets of $2.6 billion and liabilities of $2.7 billion. This is after taking a series of write offs during the year namely a pre‑tax impairment charge of $233.1 million, a pre‑tax $35.6 million unfavourable mark to market (MTM) movements associated with interest rate hedges and a $36.7 million provision for doubtful debts.

So there is a shareholder deficiency of $133m but this after allowing for the fair value of the BEPPA securities being 677m. Taking all this into account the BEPPAs appear deficient (on the basis only of their interest in BBI EPS Limited) to the tune of 133+(779(the face value of BEPPAs)-677)= 235 or 30 cents in the dollar i.e. they are worth 70 cents in the dollar based on their own asset base.

But we also need to remember that they have a guarantee from the parent. So if there is any value in a liquidation up in the mother ship then it goes to BBI EPS holders in priority to the common equity holders.

My conclusions are:

* BBI EPS Limited holds good assets that have not been discussed in the media as being part of the sale to the CSI.

* These assets are worth 70 cents in the dollar to BEPPAs and probably more if we think their write downs in June were over the top.

* As well as these solid assets the BEPPAs hold a subordinated guarantee from the parent - that seems to be worth something because the talk is that BBI will survive.

* taking all this on board the BEPPAs should be worth a dollar and it is difficult to see why BEPPA holders would accept anything else