When The Path To A Big Pot Of Cash Is Blocked ...

Sydney Morning Herald

Wednesday September 17, 2008

Edited by COLIN KRUGER xchange@smh.com.au

It didn't stop Burrup's owner. He found another route.

BURRUP'S plans for a public float may have been stalled by the fire at Apache's Varanus Island gas plant, but the ammonia producer's founder has found another way to cash out.

Pankaj Oswal received $141 million after selling 5 per cent of his equity stake in the business to Burrup's partner, the Norwegian ammonia trader Yara International.

The transaction values Burrup at more than $2.8 billion, compared with an estimated value earlier this year of $2.5 billion.

The sale takes Yara's holding in Burrup to 35 per cent. Oswal retains 65 per cent.

"The purchase increases Yara's position in a low-cost gas area," said Yara's chief executive, Thorleif Enger. "It also strengthens Yara's contractual rights to downstream upgrading and marketing from Burrup Holdings in an interesting market for both our industrial and fertiliser products."

Yara was due to sell down its original 30 per cent holding to 27 per cent in the float.

Burrup has a 20-year agreement with Yara to distribute and sell the ammonia Burrup produces. Ammonia is a key ingredient in nitrogen-based fertiliser.

The two partners recently announced an agreement to look at building an ammonium nitrate plant, for explosives to serve Australia's booming mining industry. If the parties proceed with the plant, it is expected to be commissioned during the 2010-11 financial year.

Another whack

Babcock & Brown confirmed yesterday it had no exposure to Lehman's collapse - but that was the only good news out of the company, with its stock dropping below the $1 mark for the first time.

The loss of Phil Green from the Babcock board on Monday may have been cathartic for investors, who have lost a fortune over the past year, but it may actually be detrimental to the company's survival, Citi says.

"His role in building the business over the years, experience and long-held relationships with banks and investors could see this decision taken negatively by such parties," the broker says.

Then again, the downside appears to be priced in at current levels. Shares dropped to a new low of 79c during trading yesterday before closing more than 33 per cent lower at $1.05. This compares to Citi's price target of $4.16.

But the plummeting share price could itself become an issue, the broker says. That "could unfortunately further further impact [on] Babcock's ability to retain key staff and conduct business and, in particular, achieve desired sale prices for the European wind farm portfolio and other non-core assets which are greatly needed to reduce balance sheet pressure."

Poorer but happier

If Andrew Forrest's past protestations that he did not enjoy being Australia's richest man are true, maybe the Fortescue Metals boss is a bit happier of late.

The price of Fortescue shares - which had another losing day yesterday - has more than halved since late June, closing 24c lower at $5.59 yesterday.

But even though he's lost the unwanted mantle, there could still be cause for concern. In a fortnight the miner's shareholders will vote to change Fortescue's constitution to allow it to issue preference shares. In addition to planned presales of product to Chinese customers, the preference share issue will help it fund expansions without diluting Forrest's voting power in the short term.

Fortescue has not announced all the terms of the proposed preference shares, but the change to the constitution is that "preference shares may convert into shares in some circumstances and, as a result, may dilute the percentage ownership of the company held by shareholders".

Some observers thought Fortescue's unsuccessful campaign against short-sellers was a move to help shore up its share price ahead of issuing the new equity. The terms of the proposed conversion of the preference shares are unclear, but it is possible the low current share price may not help matters. It would certainly pose a challenge to a conventional equity raising.

Elsewhere in iron ore, Rio Tinto has repaired a damaged car dumper at Cape Lambert. Xchange understands the incident cost it about 400,000 tonnes of lost production - less than its initial warning that it could lose up to 1 million tonnes.

So far, so good

The newly appointed receivers and administrators have settled in at the failed Gold Coast developer Octaviar, and it is all looking rather amicable at the moment.

The administrators, Deloitte's John Greig and Nicholas Harwood, have even pencilled in the first meeting of creditors for Wednesday, September 24, at Deloitte's office in Brisbane.

Greig told Xchange yesterday the receivers had been "working around the clock" as they got to grips with Octaviar's complex set-up. They have also been meeting Octaviar's major creditors to see what they think of the proposal by the company's previous management to keep the it afloat.

The administrators hope to offer some version of this proposal, with the blessing of the receivers appointed by Fortress Credit to protect its $60 million exposure to Octaviar.

Apparently the receivers, PPB's Stephen Parbery and Tony Sims, are happy to take a seat at the table and keep track of proceedings. Despite Fortress having a secured charge over the assets of the holding company in the Octaviar group, no assets have been seized for sale so far.

All in all, it is a good sign for Octaviar creditors, who want to get some agreement between the parties rather than putting Octaviar into liquidation.

© 2008 Sydney Morning Herald

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