BREAKFAST DEALS: Capital craving

QBE Insurance may be forced to raise additional capital to protect its credit rating, while BlueScope abandons an American debt deal.

QBE Insurance shareholders are still fretting about a possible capital raising despite yesterday’s convertible notes issue. Part of their angst could be directed at the US government. BlueScope Steel also copped some share price pain yesterday for dropping its American debt deal. Meanwhile, Apache Energy is reportedly selling out of Burrup Fertilisers, which would prove to be a quick stopover. Elsewhere, Brisconnections shares have been suspended as talks with its banks begin, while Lazard Australia has axed two senior operators following the O’Sullivan Partners merger.

QBE Insurance

The share price battering that QBE Insurance copped yesterday on its updated guidance on the back of Hurricane Sandy spoke of more than the lower profit forecast.

QBE’s preliminary assessment is that it’s staring at losses of $350 million to $450 million from "Superstorm Sandy”.

That title at the end is important. Insurers in the US were outraged that the federal government downgraded the status of Sandy from a Hurricane once it hit the shore because it increases their payout burden. The estimated total damage bill of $US50-$US60 billion is Hurricane money, over $US20 billion of which will be covered by storm-grade insurance policies.

Now it should be pointed out that QBE didn’t make any reference to this distinction in its note to the market. It’s just something to be aware of, because the American insurance companies are incensed.

About 10 per cent of QBE’s premiums are held in the northeastern states of the US that were smashed by Sandy.

The Australian-listed insurer announced a $500 million convertible security as cover, but the Australian market wasn’t swayed. The share price tanked 8.3 per cent to $11.80, having traded above $14 before Sandy came knocking.

The problem for QBE is that the convertible notes, via Bank of America Merrill Lynch and JPMorgan, mightn’t be enough to prevent it from having its rating downgraded. The inference is that only a capital raising will repair its balance sheet.

Ratings agency Standard & Poor’s said the company’s capital position was "deficient,” even after the convertible note. The company’s outlook was cut from "stable” to "negative”.

While the reputation of the ratings agencies, particularly S&P, have taken a hit in Australia, the reality is that companies are just as reliant on their good graces.

The Australian Financial Review suggests that QBE could be facing a capital raising in the order of $1 billion.

BlueScope Steel

Questions were also being raised yesterday in relation to BlueScope Steel, after the company announced that its $US300 million ($289.9 million) corporate bond had been axed.

BlueScope pointed to volatility in the US credit markets as the reason for its decision, which gave some onlookers pause for thought because the US markets are in a purple patch at the moment.

"While BlueScope Steel received significant investor interest in the proposed offering, this interest did not ultimately result in terms and conditions that met the company's expectations,” the company said in a statement to the market.

BlueScope was planning to refinance existing long-term debts.

This might also be a reflection of the fact that BlueScope has its mojo back, courtesy of its joint venture with Japanese giant Nippon Steel.

The $1.36 billion deal over the company’s North American operations, to be retitled NS BlueScope Coated Products, gives the Australian company some firepower to pay down its obligations.

Ergo, it’s not worth flying into US debt markets still swaying in the winds of Hurricane Sandy, when Nippon is providing some cover.

Burrup Fertilisers, Apache Energy

American energy giant Apache Energy is reportedly getting out of what’s left of Australian ammonia producer Burrup Fertilisers for what could be more than $US400 million ($385 million).

According to The Australian Financial Review, the possible bidders for Apache’s 49 per cent stake are of course 51 per cent shareholder Yara International, along with Incitec Pivot and Agrium.

In a separate report, the AFR also reminds readers that Incitec was understood to have been interested in agribusiness Elders many years ago.

Apache only picked up its stake in Burrup, now known as Yara Pilbara, about 10 months ago, which raises questions about why it jumped in to begin with.

The fertiliser company is the product of Indian tycoon Pankaj Oswal, who’s currently back home unwilling to return to Australia to answer questions from authorities about an alleged $113 million fraud.


The clouds are darkening above Brisbane’s Airport Link tunnel, with seemingly eternally embattled operator Brisconnections conceding that there is "significant uncertainty” surrounding the talks with its lenders.

The company announced after the market closed yesterday that it would suspend trading in its shares and begin negotiations with its banks about possible options for "potential reconstruction”.

Tellingly, the company said that its total enterprise value "may be less than the outstanding debt”.

Brisconnections has been talking with PPB Advisory about its business, amid disappointing traffic numbers.

The tollroad company also announced the departure of Andrea Harcourt and Richard Wharton from the board.

Some readers might remember that Brisconnections was the company that creative young investor Nicholas Bolton bought into, sparking a legal wrangle over the obligations that his shares held.

At the time, it was reported that Bolton once worked on the special effects team behind the ill-fated Scooby Doo movie. One would assume that Brisconnections will need a Mystery Machine or two to use the Brisbane Airport Link to get out of this pickle.

Wrapping up

In a day that was filled with capital raising news and speculation, rare earths miner Lynas Corporation slid over 6 per cent after announcing a $150 million capital raising from institutional investors to help bring its Malaysian project, once the constant subject of regulatory uncertainty, to life.

The company is also tapping retail investors for $50 million after a Malaysian court lifted the suspension on its rare earths project, which has been picketed by environmental protesters.

Meanwhile, mining tycoon Nathan Tinkler has settled two claims made against two of his private companies. According to Fairfax, the settlement total was a pretty modest $342,359.

Elsewhere, Leighton Holdings subsidiary Leighton Contractors (Asia) has picked up a design and build deal with Wynn Resorts for a hotel in Macau. The project is set to cover more than 450,000 square metres.

And finally, independent advisory firm Lazard Australia has moved on managing director John Stewart and director Michael Quinn after its merger with O’Sullivan Partners, The Australian Financial Review reports.

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