BREAKFAST DEALS: NBN rejig
NBN
Communications Minister Stephen Conroy may have cleared the air on how the current framework for the $36 billion national broadband network came into being but it's the boss of NBN Co, Mike Quigley – the man running the show with regards to the construction of the network – who is facing the hard questions at the moment. The construction process is already reportedly four months behind schedule thanks to a bungled tender process which has claimed casualties on the NBN Co's executive ranks. Quigley is apparently doing the rounds to convince all involved that the wheels aren't coming off just yet and a new tender process is on its way. That process was initially thought to involve Leighton Holdings-Siemens joint venture Silcar coming on board as the prime contractor for the nationwide rollout, but The Australian Financial Review reports that Silcar is now expected to work on 19 selected "second release” sites. According to the paper, the move to develop a limited number of sites is designed to give the NBN Co more time to bed the new tender process. Quigley is confident that the alternate route will provide better value for money and, unlike Conroy, sought to distance himself from talk that construction companies were price gouging and in cahoots when it came to ripping of the NBN Co. However, the bottom line is that the procurement process has not worked according to plan and the deal with Telstra is yet to be finalised. These may be seen as minor hiccups in an ambitious nationwide project but further delays will only lead to further questions, ones that may prove to be far more difficult to dodge for Quigley and Conroy.
Shell, Clyde Refinery
Royal Dutch Shell is making headlines again and this time it's the downstream business that is the centre of attention after the oil major announced plans to stop refining operations at its Clyde refinery. Shell is proposing to turn the refinery, acquired in 1928, into a fuel terminal and the move has raised concerns about the long-term future of the refinery business in Australia. Shell vice-president Andrew Smith was at pains to point out that the company was still committed to its downstream business in Australia but the reality is that Clyde just can't compete against the mega-refineries in Asia (India, South Korea, Japan) which are increasingly starting to produce the type of "clean fuels" that so far have been produced domestically. On top of that, Clyde, the oldest refinery in Australia, is in need of a major makeover that would see Shell pour in tens of thousands of dollars. Faced with that prospect it is easy to see Shell's motivation here. Unfortunately, the decision will inevitably result in job losses given that the refinery currently employs 310 workers but Shell can operate an import terminal with only 30 to 50 people. Curiously, Shell has decided to discuss the proposal with the staff of Clyde but it's unclear how exactly the workers will respond to the proposal and just what remedy they can provide when Smith's overall tone does not exude confidence. Shell's Geelong facility is presumably safe for the moment given the money recently spent at the refinery but the overall picture for the refinery business looks grim. That's something Caltex, Australia's only listed refiner, needs to keep a close eye on. Asian competition is heating up and that is clearly leading to overcapacity – and margins are shrinking given that they can produce the goods much cheaper than Shell. Clyde's transformation will leave only six refineries operating in Australia and while the proposed carbon tax was not cited as a factor by Shell, its introduction may prove to be another headwind for an already challenging business.
Goodman Group, APG, ProLogis European Properties
Moving to the property sector, an acquisitive Goodman Group has failed in its attempt to nab the biggest owner of warehouses in Europe, ProLogis European Properties. Goodman had joined forces with Dutch pension fund Algemene Pensioen Groep NV to lob an unsolicited non-binding €1.1 billion ($A1.6 billion) bid for the company in March. The companies had offered PEPR's major shareholder – US-based ProLogis – €6 a share or €378 million for its 33.1 per cent stake. However, ProLogis has knocked back the proposal, saying it was in no mood to sell its interest in PEPR or its managing rights. Goodman and APG have said that they remain willing to enter further discussions if ProLogis were to reconsider its rejection.
Leighton Holdings
Leighton Holdings may have got the ball rolling with a $747 million capital raising after posting a massive $427 million loss but many in the market are yet to be convinced whether the full extent of the rot in the construction giant's balance sheet has been revealed. Standard & Poor's has joined fellow rating agency Moody's in placing Leighton on CreditWatch with negative implications following the full-year profit downgrade and analysts are still worried that there is more pain to come from the Airport Link project and the Victorian Desalination Plant project. Well, if Leighton fails to meet its June 2012 deadline for both projects then you can be sure that things will turn nasty, and then there is the further complication of the company budgeting generous sums for claims it may not have received. Leighton's subsidiaries Thiess and John Holland are reportedly pursuing claims related to the increased costs and delays to the Airport Link project but as the AFR points out it's still unclear who the units will pursue. Leighton has also flagged moves to recover some of the costs it has suffered on the desalination project but here again it's unclear if the company is going to go after the Victorian government or contractors. So there may be some more speed bumps ahead for Leighton boss David Stewart and The Australian also reports that there is some confusion with regards to the nature of the consultancy arrangement between Leighton and former chief executive Wal King. King had stepped down from the board of Leighton's Al Habtoor joint venture in January but it looks like Al Habtoor doesn't want to let go of him.
Wrapping up
In the media sector, Prime Media Group, the producer of the Fox Sports pay-TV channels, is reportedly set to welcome a senior Foxtel executive as its new chief executive. According to The Australian, Foxtel's executive director of sales and product development, Patrick Delany, is set to replace outgoing chief executive David Malone. Meanwhile, Kerry Stokes and Seven may be unsuccessful in their bid to delay Seven's former chief sales and digital officer James Warburton from starting the top job at Ten Network for as long as it had hoped. In the resources sector, Minmetals Resources, a unit of China's biggest metals trading company, has secured the major funding for its tilt at Equinox Mining from three Chinese banks. According to Minmetals, three Chinese banks will provide at least $US4.6 billion in corporate debt financing for the bid. Finally, the BRW Rich List looks set to welcome a new billionaire to its list thanks to the imminent IPO of the Swiss commodities trader Glencore. According to the AFR, the float is about to make Glencore's low profile Australian chief financial officer Steven Kalmin a very rich man. Kalmin, who left Australia to join Glencore in 2003, is reportedly set to emerge with a shareholding worth $1.5 billion.
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