I made the original posting on this thread a couple of days ago...

I made the original posting on this thread a couple of days ago - it might be worth a read if you missed it. I wanted to add four additional points which have come up since.

I mentioned that we are of the opinion that Brian Healey would not remain chairman of the company for much longer. Lo and behold yesterday on the front page of the AFR, there he is saying that he won't be staying on until 2010. I promise you, we did not know this was coming. However, it is good news. I know he has had a hard time and all, but at the end of the day he needs to take some of the responsibility for the downfall. He has also been very quiet in the last 4 1/2 months, which is not good form for someone in his position. There are going to be numerous changes to the whole governance structure of the company so we should expect to see some changes in directors and boards in the coming months. This can only be a good thing.

One thing that has been a concern for a while is how long CNP and CER can stay in the ASX200 list. S&P say that when a company falls on hard times, they always allow a workout period before moving them off of the list. Given the drastic drop in market cap since December, it is going to be interesting to see how long a workout period they are both given. The loss of one or either of the companies from the list would not be good and depending on how long it takes for them to turnaround, we may not see a return for some time.

Both S&P and Moody's have CNP on credit watch after lowering the CNP credit rating post-meltdown. At the current level, the company is going to find it almost impossible to raise additional capital (past the refinance) without paying a significant premium. If banks lend to CNP, they are going to require more capital under Basel II. One would expect that over the coming months, after refinance is confirmed, the company credit rating will improve but how long this is going to take is unclear.

Finally, there is one thing bothering me that I need to mention...

In my opinion, the extension is in the bag full stop. There is a general expectation though that the SP is going to head north at a rapid rate when we get confirmation of this, presumably next week. We have run the numbers of CNP and are as confident as we can be about our own investment and the long-term potential. However, I need to urge caution that peripheral disclosures that the company may make next week COULD have an adverse effect on the SP.

Examples of these may include:

1. The new interest rates for the debt
2. What impact recent events may have had on the company FX and interest rate swaps (hedges)
3. What level of provision that may need to make for things such as legal action or extension fees
4. What restructuring costs may have already been incurred or need to be incurred to get the company well again
5. If DPF/DPFI are opened up again, what financial impact this could have.

Again, we have no inside knowledge on what may come out; just previous experience of similar circumstances. At this stage, predicting the impact of these without any information from the company has a high margin of error.

Now, if the company gives good disclosure and issues earnings guidance in the announcement we can all do the maths. If something comes out of left field however, it may shock the market.

I personally think a lot of the dead wood was cut out in the half-year results with the $1bn+ loss. In fact they may have squirreled some money away (all legit of course) but at this stage it is hard to tell.

We obviously have a vested interest in the SP appreciating in value over time but I would recommend adopting a prudent approach to managing your own investment risk. If CNP takes a tumble, there will be no institutional buyers propping up the share price so be careful about getting caught up in the euphoria. Remember that it's the instos that sold us all the shares in the first place.