BEPPA will only trade north of 60c when the market has a firm view on what will happen on reset. Hybrids are a very much unloved asset class, in a very much unloved sector (infra).
Right now, if BBI only achieve DBCT and Euroports sales, there won't be enough cash to satisfy both the banks and BEPPA holders.
What are the options on reset then?
(1) Turn BEPPA into a perp at the new spread, likely 500-600bp over swap at current market spreads. This will lead to a discount. See Australand hybrids (AAZPB) trading at $50 with a coupon of 500bp over swap. (2) They manage to roll the hybrids into new corporate debt. Highly unlikely given what we've just been through. (3) They get converted to equity. This will be a disaster scenario unless the market cap is >2bn, which is doubtful because the threat of dilution causes selling that increases the severity of the dilution. If the market cap isn't big enough, you just won't be able to sell all the shares you get. (4) BBI change their name and manage to fool investors into buying another hybrid issue. Maybe by 2012? Who knows.
Another example is the Macquarie Airport hybrids, MAZPA. These are trading at a 15% annualised yield to maturity and redemption is GUARANTEED in Jan 2010.
I think about it every day, but I'm just not too sure what will happen with BEPPA. Maybe it's just a question thats just too hard to answer right now.
BBI Price at posting:
7.9¢ Sentiment: LT Buy Disclosure: Held
