best and worst case outcomes for asset sales, page-21

"Last financial report NTA 400 million. 1.5 million ELDPA, face value 150 million... these are safe even with write downs of another 250 million from last report. In case of windup, these become preference shares and ordinary shareholders only get paid if these are fully paid. Where have I gone wrong ?"

m-o-s,

If we look at the balance sheet a little closer, things look rather grim if the company is forced to take further write-downs in the process of selling all its businesses. Let's look at the figures from the Mar12 HY report:

Net Assets: $647m
which includes:
-Intangibles 260m
-Deferred Tax Assets 90m
which leaves NTA of $297m...
... which also includes Forestry Assets of $165m.

To begin with, it is worth noting that over the last several half-years the company has been cash flow negative in its operating activities, which means they have been burning cash at the rate of around $30m or so (on average) every six months. So in the Sep12 result we are likely to see Net Assets reduced from $647m to around $617m already... and probably contunuing to go down further since...

In a windup situation (using your scenario), you would be lucky to realise 25% of the book value of Intangibles & deferred tax assets, and say 50% of that of the Forestry Assets.

If we apply these discounts, Net Assets realised will be:
(Likely) Sep12 Net Assets of $617m less 75% of (260m+90m) less 50% of 165m, giving a value of $272m.

But realisation of this value assumes that all other (tangible) assets can be sold at the book value, which would be an optimistic assumption in a windup scenario! And, of course the company will continuing to burn more cash during the process of selling these assets, which could take another year or more.

So for hybrids ($145m par value) to be fully paid, there is not much buffer left for writedown of the non-Forestry tangible assets to be sold. Chances are there will only a be much reduced payout (from par) for the hybrid holders, and probably nothing left for the ordinary shareholders.

The best chance for the company to restore reasonable value for both the hybrid holders and shareholders, IMHO, is to keep trading ans seek partial or total merger with another party, and/or equity raising (preferably under a different Management and Board).