Asciano boss Mark Rowsthorn will have been heartened by the success of the recent Wesfarmers issue as he works out the best way to raise capital without spooking an already sceptical investor base.
He's just lost his chief financial officer Austen Perrin and his leveraged infrastructure company needs cash.
Although the retail part of the Wesfarmers $2.5 billion raising is yet to be priced, the accelerated rights issue format looks a smart move.
There had been 'shorts' aplenty in the big conglomerate. The jury was out, and remains out, on the ambitious Coles acquisition.
Still, the shorts got trapped and squeezed as Wesfarmers shares were suspended for the issue.
Global markets then did Wesfarmers chief Richard Goyder a favour and boomed for a couple of days. ''Long only'' institutional players were convinced to hold their position. Goyder has his money in the kick, and the banks off his back.
Whereas Goyder had found equity was simply cheaper to raise than debt - debt which had been priced between 7%-8% when the Coles transaction was struck last year is now priced at 11%-12% - his opposite number at Asciano is going to find both debt and equity expensive.
For a start, the banks probably won't lend Rowsthorn any more money until he puts more equity in the Asciano coffers. The rail and ports operation already did a refinancing two months ago.
And Asciano's stock price is on its knees, rendering equity expensive, and unless shareholders take up a rights issue, dilutive to boot.
Rowsthorn has looked at hybrids, such as a convertible note issue, and he's looked at raising straight equity. A deeply discounted rights issue may be the best option.
Shareholders all get to participate, equally, and get to enjoy the discount, equally.
Were he to opt for a placement or hybrid issue, though, his brokers would be inclined to structure it lavishly - especially in the present climate - to deliver their clients a cheap entry into the stock. Long-suffering Asciano shareholders would be diluted.
Besides word getting out of market soundings, the brokers are talking.
According to a note from Merrill Lynch, Asciano faces a "$360 million funding gap (which) could be reduced to $250 million by introducing a (Dividend Re-investment Plan) and flattening the distribution to 46c''. A more severe cut to the distribution, says the broker, or an equity raising would still be required to make up the $250 million.
Despite his apparent need for cash, and onerous debt of $4.5 billion, Rowsthorn is still talking about spending $1.2 billion in capex between now and 2010, bursting into the Queensland rail coal market ($512 million on Merrills numbers) plus another $550 million in general capex on ports and rail.
There is also talk about selling 20% of Asciano's port assets to a super fund or sovereign fund to raise $1 billion.
Problem is he wants too high a price for a minority stake. And then there is the nightmare scenario - slowing growth.
A note from the JP Morgan analysts who follows the stock says JP is still forecasting a 4% growth in ports earnings for 2009 and 5.5% growth in car imports.
"If both were to experience zero growth in FY09, this would reduce our forecast EBITDA by 2% and NPAT by 25%.''. The risks are a "slowdown in import container volumes, cuts to distributions and further debt and equity market volatility''.
Talk about DRPs and cutting the distribution, though, probably don't address Asciano's situation adequately.
Frankly, this has been a mess since it split from Toll Holdings.
Not only did it strap on huge leverage at the peak of the cycle last year, it then went out with an abortive takeover plan for a company three times its size in Brambles, presumably using even more debt. That was abandoned.
Management then claimed the Brambles position was in the black and Asciano would exit profitably - it took an $85 million loss recently.
It was forced to pull back earnings guidance and later refinance its debt, after telling the market everything was hunky dory.
The days of fancy leveraged infrastructure acquisitions and asset juggling are over. There is evidence that container volumes growth is slowing.
These account for more than 80% of the ports division earnings. With Asciano's gearing, a small decline in EBITDA turns into a large hole in the bottom line. Rowsthorn is walking a tightrope.
Talk of acquisitions is tough indeed.
AIO Price at posting:
0.0¢ Sentiment: LT Buy Disclosure: Held
