and a breach of the 50% gearing covenant and with the banks
it is the only way one can make sense of what is happening
1.the expected rate of return is right out of wack - 31% for a cash machine. ridiculous
2. bookvalue is way over the market price @ 98c
if the company does breach its debt covenant it'll probably be over for gpt
unless they can get another capital raising away
but would assets have fallen by 40%
I can't see it happening
check out my calculations for expected rate of return and gearing ratios
first expected rate of return implied by market price
v
v
v
rents seem to have held up pretty well. the last divi was $0.021
multiply that by 4 and get 8.4c
.084/.27 = 31%
risk free rate = 4.4%
equity premium = 26.7%
expected rate of return is 31%
now check out the gearing ratio and decline in assets of say 30% and 40%
v
v
v
assumptions
*capital raising of 1 for 1 @ 60c
*total writeoff of the jv
*a 30% decline in asset values
*a 40% decline in asset values
the original NTA was $3.82 just before the capital raising
equity = $8.4 bn
no of shares = 2.2 bn
$8.4bn/2.2bn = $3.82
the balance sheet looked like this
assets $14 bn
debts $5.6
equity $8.4
* we've just had a 1 for 1 equity raising @ 60c which was used to reduce debt
2bn shares x .60 = $1.3 bn
assets $14 bn
debts $4.3bn
equity $9.7 bn
equity $9.7 bn
no of shares = 4.4 bn
bookvalue = $2.20
then there is the JV with BNB
$2bn was leant to the jv
jv balance sheet looked like this
assets $7bn
debt $5 bn
equity $2bn
the JV has been written down to zero
you therefore have to knock off $2bn from the balance sheet
assets $12bn
debts $4.3 bn
equity$7.7 bn
bookvalue = (7.7/4.4) = $1.75
* next include 30% reduction in asset values
assets $12bn
debts $4.3 bn
equity$7.7 bn
assets $9.23bn
debts $4.3bn
equity $4.93bn
bookvalue = $1.12
gearing = 46.5%
lets see what happens if you have a 40% writedown on assets
assets $8.6bn
debts $4.3 bn
equity $4.3 bn
bookvalue = $0.98
gearing 50% but in breach of the bank's 50% covenant
gameover
what are the chances that that will happen?
the only other thing I can think of is another capital raising
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