bnb will survive, page-26

Rather than continue with the entertaining spat (where are moderators when you need them) why don't we return to the basic BNB discussion?

Lets do some accounting 101 - and have a look at the basic balance sheet structure

BNB (12/7)
Current Assets $7B
Non Current Assets $8B
Current Liabilities $4B
Non Current Liabilities $9B

BBI (6/8)
Current Assets $1B
Non Current Assets $13B
Current Liabilities $1.5B
Non Current Liabilities $10B

One point is evident - the two entities are structured for completely different purposes. BNB, as the development bank, is structured with ready cash assets to do deals and developments. BBI derives income from buying and holding infrastructure assets.

On the face of it - events since balance dates would tend to favour the more conservative BBI stance.

However, let us look deeper.

BBI has, as assets:
Intangibles ex Good will $2B
Goodwill $1.4B
FITB $0.7B

BNB has:
Intangibles & Goodwill $0.36B
and, in the liabilities column $0.5B deferred taxation, which might go away given the likelyhood of an '08 loss.

The conclusion is that BBI equity could be effectively zero, if you write down Intangibles, Goodwill and future tax benefit. The BNB Intangibles is likely to reflect the 8% interest in BBI, equity accounted.

Now I realise there are very good reasons for Int & GW to be recognised in an infrastructure company accounts. However, this remains a question - it is clear that these asset numbers will head lower - by how much?

The BNB balance sheet is neutral on this issue.

BNB has the greater restructuring task. There will be significant asset impairments (announced, but no detail); the completion of development projects will radically alter the current asset/liability amounts (we really need to review '08 to see how the year went - hopefully some profitable contributions from development).

However, BNB has room to maneuver. It seems to have a working relationship with it's bankers (this is very important); the financial reserves within the various private and public funds remains an undisclosed cashflow asset (BBEIF is a case in point).

BNB's complexity is likely to contain hidden opportunities!

On balance, BNB offers more risk, but significantly greater reward. BBI does face some real asset valuation issues and any intermediate term refinancing requirements are likely to reduce margins.

I remain of the view that BNBG/BBN010 and BEPPA/BBN010/BBN020 are the lower risk opportunities to take a position in these firms.