Forum Archive Index - August 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Lindley,

>
>
>>According to my information, when the revenue stream was listed in
>>1997 it achieved a 75% subscription level.  Does this mean that BRY
>>retained 25% of the rights?
>
>Sorry I can't remember what happened, but it would seem the logical
>thing that they still own the rest, unless they 'sold' further bits
>off subsequently.
>
>

OK, I'll run with the assumption that Brierley own 25% of BSO (Bass
Strait Oil).   As near as I can figure, and I haven't been able to
confirm it (please help if you can!), there are 44 million BSO units
on the market.  25% of those make 11 million.  They are valued at
$US69.1m in the 2001 BRY Annual Report.  Using the conversion rate of
$US1= $NZ0.5106 (the exchange rate on balance sheet date) this gives
the BIL stake in BSO a book value of $135m.  That works out at $A3.38
per unit.  Looking at the share chart the minimum market value in
that month dips to around $A3.50.  That is in fairly close agreement
with the carrying value on BIL's books.  Looks like you might be
right Lindley!

>
>
>>we can value AIR and THO as the market values them.
>
>
>Mkt value yes, realisable value, probably not at the moment.
>
>

You don't think that BRY could sell their 5.4% of Air New Zealand
(AIR) at 65c per share?  I guess it will depend on the detailing of
the Qantas tie up as to what the value of Air NZ shares will settle
at.  My feeling is that it will be well below 65c.  But then again,
what is to stop BRY leaking away some of their holding to the hapless
punters at 65c, in much the same way they are now selling down Fraser
and Neave?

Thistle Hotels (THO) is a slightly different case in that BRY own so
much of it.  Perhaps a better known international hotel brand than
Thistle might buy the whole block off them, and rebrand the whole
chain?  But since September 11th I don't think International Hotel
groups have been flush with cash for expansion plans.  So I think you
are right Lindley.  BRY are pretty well stuck there.

>
>
>>>
>>>BSR could be sold off,
>>>
>>
>> Essentially they have already done that (this is what BSO is), so
>>I don't think they can do it again until 2007.  Or can they?
>
>
>They could sell any remaining units they have
>
>

They could probably place those 11 million BSO units (if they
exist!) at around $A3 per share.  That makes $A33m or around $US15m
if they were cashed up. But once BRY do that, then they lose the
income stream from the asset.  The market is telling us they expect
that income stream to be around $US3m or $A6.6m( $US15m divided by
the 5 years left in the listed Royalty) per year on a straight line
amortisation basis.  $A6.6million on a market value of $A33m is a 20%
return.

The actual return in the 12 months ended March 2002 was 26.74c +
16.54c = 43.28c.  That is a yield of 0.4328/$3= 14.4%.  So what would
I do if in the hot seat at BIL?  Probably sell the block of 11m
BSO shares and lock in the projected 20% return per year on the
BSO asset for the next 5 years as a profit for this year.  But can
BRY sell such a large block of BSO units at the market price?  Would
anyone venture an answer to that?


>
>
>and/or sell the
>residual ownership. May not get best price, but at least something.
>
>


They floated the royalty offering for $A220m in 1997.   Perhaps with
some more oil and gas discoveries in Bass Straight they can raise
that amount again in 2007?   And this time it would all be pure
profit!

$A220m or $US110m translates to around NZ17c per share if BRY can
float off 10 years of rights again.  That enables 12% of their end
of year 2001 debt to be paid off.   Will that be significant come
year 2007?

>
>
>Assuming THO isn't consolidated onto their balance sheet, then THO
>will also have a pile of it's own debt.
>
>

I'm fairly sure that 'Thistle' is not consolidated into the BIL
balance sheet.  BRY only own 46% of it after all.  But Thistle is
actually in good shape since they received £600m from the sale and
leaseback of their up country hotels.  They have an equity ratio of
86% and have cleared their bank loans by my reading of the
sale/leaseback deal.

>
>
>So they've got a pile of debt, but to pay it off they either have to
>sell all of THO or everything else, to get close to clearing their
>debt. And now is not a great time to be selling things - in the case
>of THO it never is.
>
>

If they sell off everything else, they will all be out of a job!  BRY
doesn't need to pay an executive team to look over the shoulder of
people at Thistle.   There is one other option.  A big capital
repayment from Thistle.   If Thistle have successfully flogged off 37
of their hotels for £600m in some of the worst six months for
tourism (post September 11), why not flog off a few more?   If you
did that you would have excess capital that might be returned to
shareholders.  And guess who the biggest shareholder is?  The cash
strapped BIL International!

>
>
>I was trying to think of a way out for them/us. Guess the experts
>have done the same and can't figure a way out for them, hence the
>share price and the lack of action at the company. Only option I can
>see would be some variation of the following: - pay of the debt from
>cash and FRN,
>
>

I notice from the BRY news release to the New Zealand stock exchange
that the new banking agreement covers only $US300m in loans whereas
the one that has just expired was for $600m.   Reading between the
lines does that mean they have paid off $300m of the original loan
from cash reserves?   Am I right in my interpretation of that
announcement? (see the news section of the Stocknessmonster site for
the detail)

If I am wrong the debt is still around $NZ1.44 per share.  The sale
of Fraser and Neave shares will at the most clear only 20c of that
debt.

>
>cash issue to existing shareholders at 1/2 mkt value
>of the entire THO holding to pay off the remiaing debt,
>
>

Ugh, 'cash issue'.  I don't like that phrase!  The market value of
Thistle shares is $1.43 per BIL share.  You want to raise 71c per BIL
share to pay off 71c worth of debt?   How are you going to do that
when the current BRY share price is only 61c?

>
>
> A few quick figures, currently BRY ~NZD0.60, THO ~NZD$4.00. 1:3 cash
> issue @$2.00 for THO shares.
>
> So for 3 BRY ($1.80) + $2.00 (total$3.80) you get one THO value
> $4.00 and 3 BRY worth (AIR $0.10/share, BSR $0.10/share, Islands
> $0.25/share) $1.35. Grand total $5.35.
>
> Please check the figures I probably got something wrong.
>
>


The figures add up.  I'm not sure about the logic though. You are
saying that for every 3 Brierley shares owned you would be asking BIL
shareholders to front up with $2, or 67c per share?  No-one would
take up the deal.  Why would you, when you could buy 3 Brierley
shares on the market at only  $1.80 (60c each)?

>
>Naturally there would be a discount on the 'new' BRY shares,
>

That is the problem with your proposed scheme.  67c per share is not
a discount!

>
>but whatever it was we would still be ahead as the THO
> share alone would be worth more than we had paid.
>

Take the point of view of a new investor in BIL International.
Three existing shares at 60c plus three new ones at 67c makes
$NZ3.80.

This means the number of BIL shares would double from 1,368m shares
to 2,736m shares.  Total number of Thistle shares on issue is
998,800,000.  BIL owns 46% of those.  So the value of Thistle per BIL
share would then be:

(0.46*998m)/(2,736m)= 0.1678(THO)

or in $NZ terms

(0.1678/0.3)(THO)

With THO= £1.28 this comes to 71c per BRY share, or $4.30 for every 6
Brierley shares.  $4.30 is certainly greater than $3.80 so you are
correct Lindley.  Or are you?   I suspect if such a deal was
announced the head share price would plunge thus ruining the
economics of the deal.   It was a good bit of speculation though.
Perhaps someone can come up with an alternative rescue plan for us to
cost out?

SNOOPY





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Message posted by Harry Tennyson
 using Pegasus Mail 2.55
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