From a broker report this morning, they do a good job outlining the risk.
�� Change of control of RE triggers exchange event for BEPPA holders A change of control of the RE (BBIS) is a BEPPA Holder Exchange Event which allows holders to convert into BBI scrip. This could occur in two ways: 1) The RE is internalised; or 2) BNB becomes insolvent and the RE is subsequently sold. The Hon. Dr Hamill (BBI Chairman) stated at the AGM that this was a key reason BNB was not removed as manager of the RE (corporate governance negotiations). �� Exchange of BEPPA’s has potential to wipe out BBI equity in 55 days If an Exchange Event occurs (as noted above), an Exchange Date must fall within 55 days of the notification of the event. During this period, BEPPA holders may submit a Holder Exchange Notice and BBI must then notify how it intends to affect the exchange (ie. cash or scrip), 25 days prior to the Exchange Date. A worst case scenario is that all BEPPA holders elect to exchange and BBI would need ~$800m in cash or issue ~11.4bn securities, effectively wiping out BBI’s equity value. �� Many scenarios and much uncertainty but essentially there is much risk We do not know if BNB will be insolvent. It is also possible that a receiver may determine an innovative alternative to selling the RE (which would likely take many months in any case). And all BEPPA holders may not elect to convert into BBI securities (BEPPA’s rank ahead of ordinary equity), however the prisoner’s dilemma applies (cash potential versus scrip) and the register is highly fragmented.
BBI Price at posting:
9.0¢ Sentiment: None Disclosure: Not Held
