ubs throws $2b lifeline and $1.10 rights issue

UBS throws Asciano's board a $2bn lifeline

June 15, 2009
Article from: The Australian

"ASCIANO'S embattled board was last night expected to back a massive $2 billion equity raising, underwritten by UBS, which would allow the struggling port and rail operator to manage its $4.8bn of debt.


UBS's offer was put to the board last week, as the company considered several rescue proposals, included bids from a number of private equity groups and a $400 million equity injection from New Zealand entrepreneur Graeme Hart.

Over the weekend UBS tested the market for its equity raising, which includes a $770m rights issue to existing shareholders at $1.10 a share -- a 40 per cent discount to the latest share price -- plus a $230m underwritten placement.

There will be another $1bn placement, conditional on shareholder approval.

The board was expected to back the proposal if UBS could raise the funds.

The deal could be announced before the market opens today, in addition to other changes including a plan to increase the size of the Asciano board.

The company is also expected to release positive financial figures showing its Queensland coal haulage business has contributed at least $40m in new earnings.

For much of its two-year existence, Asciano has been under pressure because of excessive debts after the rail and port assets were split from Toll Holdings.

The company has a small board with just four members under chairman Tim Poole.

Chief executive Mark Rowsthorn has a 10 per cent stake in Asciano.

The board was expected to back UBS's offer because it kept the assets together and preserved the management.

The offer also provided one-stop-shop certainty. The other proposals involved several stages and, in the case of the private equity bids, depended on bank approval.

Initially, Mr Poole was trying to get away with a maximum $1.3 billion raising and partial asset sale, but these alternatives risked leaving the company at the whim of the market, particularly if the economy remained sluggish for some time.

However, the chairman will be under pressure to show the deal is in the best interests of shareholders. Part of the equity raising will be subject to shareholder approval because of the size of the issue compared to the company's $1.2bn market capitalisation.

If UBS was unable to raise the money, the board was due to consider rival offers which included a complicated deal from Mr Hart in which he would inject $400 million in equity and underwrite other raisings. There was also a deal proposed by Morgan Stanley and General Infrastructure Partners in which they would buy 100 per cent of Asciano's coal rail assets.

Private equity firms TPG Capital and The Carlyle Group had both presented plans based on core equity investments.

The company is due to report earnings before interest, tax and depreciation of about $650m this financial year. That is forecast to increase to between $675m and $700m next financial year.

While $1.3bn in debt is not due until next year, from July 1 the debt becomes a current liability, which means auditors must sign off on the accounts.

The exhaustive auction process was co-ordinated by Lazard Carnegie Wylie and Royal Bank of Scotland. UBS was the only investment bank not involved in any of the proposals until it arrived with what looked to be the winning deal last night."

Hence the scramble to get in on Friday.

All best and GL to shareholders.

beast