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With the world looking at the Aussie-based Centro Properties (Australia: CNP) as the next major victim of the global credit crunch, some in the market are now trying to use the same brush to tar other Australians including Babcock & Brown Infrastructure Group (Australia: BBI, OTC: BCKBF) and, to a lesser extent, Macquarie Bank (Australia: MQG, OTC: MQBKY).
We went through the fear mongering with Macquarie months ago. And for those who went with fact over fiction, the results were a positive market performance for our local bank and infrastructure company.
Macquarie Bank and its affiliated funds were dumped on in the media several weeks ago and painted by some as a scam. But not many facts were put forward, just innuendo. We went through the bank from its regulated deposits and loans to its highly successful investment in key infrastructure projects around the world and quickly affirmed that we wanted to be buyers, especially during a sell-off. And sure enough, facts won over fiction and the company has continued on track since.
Now we have to try to put a similar negative spin on Babcock.
There’s a huge difference between Centro and Babcock. Centro has a collection of highly leveraged retail properties in the US and has credit issues funding its real estate assets. This is resulting in market troubles because creditors are all clutched up and don’t know whether to lend to it or not.
But Babcock has nothing to do with such issues. And rather than have the world make accusations, the company has come out with a full rundown on its own credit conditions.
First, it doesn’t have to roll hardly anything over for years, and for the debt that’s going to rollover in 2009 is a tiny fraction of the company’s overall debt. And Babcock already has a locked-in series of commitments by lenders for that tiny fraction.
More important, the company has massive coverage for its debt. Its short-term liabilities have coverage against near-term assets by more than 50 percent-plus, meaning that even if all near term creditors came a calling, it could cover all and 50 percent more.
Next, the asset coverage on longer-term debt is also very substantial with a debt-to-asset ratio of only 55 percent because it’s not a highly leveraged company.
And last, revenue flows keep bounding higher, providing heavy cash flows to not just service its debt but also to provide ample coverage for the fat dividend flow amounting to a current yield of just shy of 10 percent.
We’re still buyers of Babcock & Brown Infrastructure Group up to 2.
