gsjbwere view

Investment View:
• While on face value, GMG appears to offer an attractive investment opportunity, we reiterate our view that there remains a high degree of uncertainty over GMG's capital management "strategy" - as such, there remains downside risk to our valuation and target price.
• While this capital uncertainty remains, we would not rule out:
1. another deal (similar to the one with Macquarie) being struck with another party - ie. a ~$250-300m debt refinance, as well as an option issue. While this has not been confirmed by management, this scenario could increase the risk of further EPS/DPS dilution to
existing equityholders; or
2. GMG coming to the equity market with a discounted equity issue.
• Neither of these scenarios is factored into our current estimates.

In our view, the refinancing package announced yesterday only provides a short term
"solution" to GMG's debt refinancing problems - especially with a further $759m of facilities
due to expire in FY10 (of which ~$649m was drawn at 31 Dec 2008). The suspension of the
2H09 dividend (announced to the market on 1 May 2009) will also assist in providing liquidity
(~$269m).
In our view, these two initiatives in isolation are not enough to address GMG's capital
management issues. With the continued risk of falling asset values we believe this increases
the risk of potential covenant breaches within GMG's managed funds platform. What is not
clear is how gearing issues within these funds will be addressed - ie. via dividend cuts, or
equity raisings, etc. Either way, the impact on GMG could be either:
i. reduced dividend income or
ii. the need to invest further equity to maintain its cornerstone investments in its managed
funds.
If it is the latter, where will GMG source its funding? If it is the former, this will have an
obvious impact on GMG's liquidity at the headstock level. There are still many uncertainties
surrounding GMG's capital management predicament.

Valuation and Target Price
Following the changes highlighted above, we revise our valuation to $0.76 (was $1.38). Our
target price is $0.43.