B&B Infrastructure raises up to A$440 million

The Australian energy and transport trust tempts investors with the issue of up to 234 million new shares on a day when the market drops below 6,000.
Babcock & Brown Infrastructure (BBI) has used the announcement of a 65% increase in half year earnings to place up to 234.5 million new stapled securities with institutional investors.

The two-day bookbuild is set to close later today (Wednesday) with the company hoping to raise a minimum of A$325 million ($256 million) or up to A$440 million if the offer is oversubscribed. The proceeds will be put towards BBIÆs purchase of US utility company NorthWestern Energy û a purchase which was announced in April last year.

Price guidance has been set between A$1.80 and A$1.88 per share with sources stating that, so far, most interest has been shown at the lower end of the range. At A$1.80 per share, the offer represents a 6.5% discount to BBIÆs closing price of A$1.92 on Monday afternoon when the shares were placed on a trading halt.

Half way through the sale process, joint bookrunners Deutsche Bank and UBS, were not having much luck with the market. The benchmark ASX/S&P200 was down 50 points or 0.8% on Tuesday, closing at 5,993, below the new barrier of 6,000 reach earlier this month. In early trading this morning, the market was down another 200 points.

It is hoped that the issue will be helped along by the release of the companyÆs half year results. Yesterday, BBI announced that it made A$251.6 million in Ebitda in the six months to December 31, 2006, representing a 65% increase over the previous corresponding period. Revenues reached A$601.3 million for the period, representing a rise of 94%.

BBI also confirmed its promise to pay a distribution of 14 cents for the 2007 financial year, up 7.7% on last financial year. It is targeting a 7% compound annual growth rate in distributions for the next two years.

The strong results are being attributed to the performance of some key assets including BBI's New Zealand electricity and gas distribution business Powerco and a Guernsey-based natural gas and LPG supply business called IEG that operates in the UK, Channel Islands, Isle of Man and Portugal. BBI bought IEG in May 2005.

Sources close to the capital raising say the new shares are likely to be bought by existing investors that like the companyÆs yield profile. ôWith distributions growing at 7% a year, BBI pays a higher dividend than its peers in the infrastructure and Reit sector,ö says one source. ôThe distributions are also fully tax deferred which makes them very attractive to investors û retail investors in particular.ö

The source says investors have also benefited from capital appreciation. ôBBIÆs securities are up 226% since its IPO in June 2002. ThatÆs almost double the performance of the key benchmark index. In the last six months alone, shareholders have made a capital return of 20.7% so it is a highly sought after stock.ö

If enough demand exists for the new shares, BBI could net a total of A$440 million which is calculated by multiplying the A$1.88 guidance price by 234.5 million shares û the total amount that can be issued under the companyÆs maximum free placement capacity. The undocumented Reg-S offering is not being marketed in the US but sources say accounts from the UK, Europe and Asia are likely to participate in the deal.

To avoid being diluted, BBIÆs parent, Babcock & Brown, will subscribe to A$15 million worth of the new securities provided it is given shareholder approval at an extraordinary general meeting to be held soon. Babcock & Brown says that it also plans to convert its remaining holding of approximately 17.8 million SPARCS (hybrid securities issued in New Zealand in 2005) to stapled securities at the next conversion date in May this year.

BBIÆs last capital raising was in February 2006 when the company raised about A$300 million via a share placement that was priced at a discount of just under 7%. ôAll three of its previous placements have priced around this level,ö says a source.

Proceeds from the new issue will be used to partly fund the trustÆs $2.2 billion purchase of NorthWestern Energy in the US, a deal announced in April last year and currently undergoing regulatory approval. NorthWestern is one of the largest providers of electricity and natural gas in the northern Midwest region of the US, serving about 675,000 customers in Montana, South Dakota and Nebraska. The business operates over 30,000 miles of electricity lines and 7,800 miles of gas pipelines. It also owns about 310 megawatts of regulated and 225 megawatts of unregulated power generation assets.

BBI says it has obtained six of the seven necessary approvals and expects the acquisition of NorthWestern to be completed in July this year.

BBI is listed on the Australian Stock Exchange and has a market capitalisation of approximately A$3 billion.
¬ Haymarket Media Limited. All rights reserved.
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