China bids everywhere, huge write-downs, pokies, Nylex, Rupert, CBA rip-offs and much more
February 2, 2010
Dear Mayne Reporters,
We've got a pile of lively stuff in this week's edition so enjoy it full well.
China Inc launches agreed bid for Oz Minerals
If you thought the debate was getting hot over Chinalco's proposed $30 billion investment in Rio Tinto, the Chinese Government have just lobbed a $2.6 billion takeover bid on the table for the teetering Oz Minerals through China MinMetals. Check out the full presentation here.
I've been puzzled for weeks about why BHP Billiton doesn't just come along and buy Oz Minerals. The stock has been suspended for three months courtesy of a combination of the commodities crash and the global financial crisis.
Two fleeing French banks have been causing trouble, the board is completely discredited and it makes absolute sense for a big gorilla to come in and calm the situation down, whilst seizing control of a highly attractive portfolio of projects. BHP has some big decisions to make in the coming weeks and it really is time they stopped lobbying Canberra over Chinalco and started lobbing some counter-bids for specific assets or whole companies.
What does China want with Rio?
Debate over the proposed $30 billion deal between Rio Tinto and Chinalco continues to divide the investment and media communities, although so far I'm surprised that so many investors have come out dead against it.
Then again, never before has China Inc, or any government for that matter, written such a big cheque on a single deal.
And whilst China last week publically committed to retain their $US682 billion investment in US bonds, which delivered an excellent 15% return over 2008, this $US19.5 billion Rio Tinto play is a very strategic and important allocation of surplus Chinese capital.
Did you notice the $12 billion in convertible bonds were priced at $US45 and $US60 a Rio share respectively? The Australian dollar and British pound are both trading well below their long term average against the US dollar. If the US dollar was to suddenly tank due to lack of Chinese support for their bonds, then hey presto, Chinalco's investment in either the Australian or UK version of Rio suddenly gets a whole lot cheaper.
The US government did a record $US21 billion bond issue on Thursday night and the big question is whether the Chinese will continue to lend the US cash as they run annual deficits exceeding $US1 trillion to bail out their economy. Stratfor produced an excellent analysis of the situation on Business Spectator.
Hillary Clinton's February 20 visit to China will be fascinating, as this excellent Bloomberg article last Friday explains.
Interestingly, the Federal Government did another $600 million bond issue on Friday morning and raised six year money at just 3.7%. Rio Tinto is paying more than 9% for its $12 billion in Chinese convertible bonds, which does look excessive.
Given the growing revolt from Rio's shareholders I reckon the Chinese will only get this deal over the line if it is sweetened and the easiest way to do that would be to lower the coupon on those bonds to, say, 7%.
Why aren't some Rio Tinto directors falling on their swords?
The most ridiculous aspect of the Chinalco deal is that none of the 15 existing Rio Tinto directors are quitting, so the board will be expanded by the two Chinalco directors.
Whilst the EGM to approve the deal in May will be highly contentious shareholders will get an early crack at the board at their AGMs in London on April 15 and Sydney on April 20.
The flights are already booked for this one because it will be red hot.
Here are the three directors who should be shoved out the door first:
Paul Skinner, chairman: former Shell executive who lives in Winchester, England, and will be retiring mid-year after 8 years on the board
Tom Albanese, CEO: had the top job since March 2006 when the American replaced Australian Leigh Clifford at the London head office.
Guy Elliott, finance director: London-based English chap who has been on the board since 2000.
One thing is for sure in all of this. The boneheaded Poms who dominate the Rio Tinto board and trashed a great empire should be axed.
With Britain on the rocks, the Rudd Government should use this opportunity to return to the ideas pushed by Ralph Willis at the time of the original Rio Tinto/CRA dual listed company construction in 1995.
Why not insist that Rio Tinto shift its head office from London to Melbourne, have its primary listing on the ASX, have an Australian chairman and a majority of Australian-based directors?
Transurban CEO and former BHP Billiton finance director Chris Lynch would be the perfect replacement for the discredited Rio CEO Tom Albanese and they should bring back the likes of Leigh Clifford, John Ralph and Leon Davis to join the Rio Tinto board through a stabilisation process.
If the Chinese are prepared to pay another big price, then who cares if they get a couple of board seats as long as the ridiculous current situation is changed which sees Rio run out of London by a reckless American CEO and a cabal of incompetent knights, lords and British establishment types.
Updating all the Mayne Report foreign ownership lists
We've packaged up all our foreign ownership lists here, but particularly draw your attention to the newly expanded list tracking ownership of Australia's major resource projects.
Foreign government investment in Australia
See how the Chinese and Singapore Government are set to own more Australian business assets than our own government.
Foreign companies turning over more than $200m a year Down Under
This list shows just what a large proportion of the Australian economy is already run by foreign companies.
Australian companies which generate more than $200m a year offshore
There aren't even 100 of these, but we should salute them.
Foreign companies unhappy with their experience Down Under
The global financial crisis has substantially changed this list in recent times.
Foreign companies that have done well in Australia
There aren't as many of these companies around any more.
Banging the drum on Today Tonight
Video about foreign ownership of Australian companies.
What the commentators are saying on Rio
Here are links to some of the commentary over Rio Tinto in recent days:
China will control most of our industry
Robert Gottliebsen, Business Spectator
Stop all this Sinophobia
Michael Pascoe, Fairfax websites
Let the Chinese in, but bring Rio Down Under
Mayne, Crikey
Approve the deal and partner with China
Mayne, Sky's Business View
Rio strapped to China Inc forever
Bartho, Business Spectator
A stinker of a deal for Rio Tinto
Alan Kohler, Business Spectator
China trying to screw BHP
Alan Kohler, Business Spectator
Rio's Chinese takeaway
Michael West, Fairfax websites
Rio Tinto is road testing our future
Terry McCrann, Herald Sun
Could BHP sue over inflated Escondida valuation?
Barry Fitzgerald, The Age
Will the China Inc investments go ahead elsewhere?
Whilst Chinalco and Rio Tinto are pushing Labor's buttons by claiming their union will save 2000 jobs by locking in unfinanced expansion projects, this only tells half the story.
China Inc has made a series of investments in second tier or greenfields Australian resource projects which will be under a cloud if the Rio partnership can satisfy its future supply needs.
We've updated the Mayne Report list tracking foreign government investments in Australia and now ask the very relevent question about what future these investments have?
For instance, the then chairman of Cape Lambert Iron, Ian Burston, told shareholders at the 2007 AGM that one of the reasons the $2 billion project was likely to go ahead including the following:
"With the proposed merger of Rio and BHP-Billiton causing a degree of concern among iron ore purchasers, the Chinese are particularly keen to diversify and secure their sources of supply."
Here is a list of Chinese government investments and projects that I reckon could be effected by the Rio play:
Sinosteel: completed a $1.37 billion takeover of WA iron ore hopeful Midwest Corp after a 2008 takeover bid pitched at $6.37 a share. Would like to buy neighboring Murchison Metals, but FIRB has limited it to a maximum 49%.
Oakajee: five Chinese companies were given FIRB approval in January 2008 to develop the $3.5 billion Oakajee port and rail project in WA and then former WA Premier Alan Carpenter announced the winning tenderer in August 2008, but construction hasn't started yet to service all those growth projects in the mid-West region near Geraldton.
Chalco: in September 2007 Queensland government awards rights to develop $3 billion bauxite project near Aurukun, which Noel Pearson has claimed includes an unfair forced land grab. This is now in doubt as Chinalco will be keen to focus its attention on expanding Rio Tinto's Queensland bauxite operations at Weipa.
Anshan Iron & Steel: paid $39 million in September 2007 for 13% of iron ore miner Gindalbie and signed $1.8 billion joint venture deal to develop the Karara Iron Ore project in Western Australia. Backed this up with a $162 million placement at 85c a share to Ansteel in February 2009 which increased its stake to 36.3%.
Shougang Corp: China's fourth biggest steel group spent $56 million in March 2007 buying 13% of iron ore developer Australian Resources and has an option to inject a further $42 million. Shougang has agreed to fund the $US2.1 billion development of the Balmoral South mine and port project in WA thorugh an interest free loan and also buy the entire output.
China Metallurgical Group: paid $400 million for the Cape Lambert Iron ore project in WA in 2008, which is now in doubt given that China has secured its supplies through Rio Tinto.
Resource Development International: Gold Coast-based Clive Palmer who still claims to be worth more than $5 billion was hoping to raise more than $1 billion from Chinese investors through a float of this iron ore venture that is still to get off the ground.
Finally on Rio, listen to the toffy Rio chairman Paul Skinner defend his shabby treatment of Australia at last year's Australian AGM in Brisbane.
Six names on in the 10 figure write down club for 2009 - so far
Stockland, News Corp and Babcock & Brown have now been joined by Rio Tinto, Oz Minerals and GPT in the "10 figure write-down club".
Yep, they've all taken an axe of more than $1 billion to their balance sheets.
The $1 billion Stockland write-off last week didn't really make the grade because it remains capitalised at less than $4.5 billion when claimed net assets only fell from $8.5 billion to $8 billion.
The same can't be said for Rio Tinto which took $US8.4 billion in write-downs on the ill-fated Alcan acquisition which reduced its net assets from $US28.62 billion to just $US20 billion.
At today's closing price of $50.80, Rio is capitalised at more than $US40 billion, so it actually deserves a place on this list tracking the most under-valued Australian balance sheets.
Meanwhile, stand by for a huge abnormal profit on the $20 billion worth of sales that Rio announced in the Chinalco deal - if it gets approved by shareholders, of course.
Even News Corp's $US8.4 billion write down - an identical figure to Rio's - only went about half way to breaching the gap between book value and market capitalisation.
Oz Minerals has probably gone to the other extreme because Friday's announcement flagged write-downs of between $2.3 billion and $2.8 billion. With the stock having last traded at 55c, this capitalises Oz Minerals at $1.7 billion yet the latest balance sheet claims it has net assets of $3.3 billion.
Lop $2.8 billion off that and you've got the directors predicting the stock will plunge to about 15c, yet the company's biggest commodity is gold which continues to soar.
Obviously under historical cost accounting, the Oz Minerals directors can't write-up the value of the gold assets such as Prominent Hill, Golden Grove, Martabe in Indonesia and the trophy operation in Laos. (These last few papagraphs were written before today's Chinese takeover bid for all of Oz Minerals at 82.5c a share.)
Finally, the GPT disclosure today was unusual because it came in response to an ASX query. Investors were told the Babcock & Brown joint venture will be written down by $700 million and direct property holdings will be marked down by another $700 million, making $1.4 billion in total. Throw in $900 million of mark-to-market losses on currency and interest rate plays and it is getting really ugly.
However, with GPT shares diving another 3c to a record low of 51c today, the market capitalisation has fallen to just $2.3 billion. Write-downs and losses of $2.3 billion after a recent $1.6 billion capital raising will still see directors and auditor David Armstrong from PwC claiming the business is worth more than $7 billion. That's quite some disconnent.
Then again, Wesfarmers did precisely nothing in today's results about the $8 billion discount in its market capitalisation to book value courtesy of the ridiculously over-priced $19.3 billion Coles acquisition. However, the Wesfarmers results actually looked pretty good and the stock finished marginally higher in a weaker market.
That still doesn't mean the board and auditor Ernst & Young should have dodged the write-down. If News Corp could write off $US2.8 billion on Dow Jones just 14 months after settling on the takeover, then Wesfarmers should have done likewise with Coles.
What companies trading at huge discounts have done so far
We've updated our list looking at companies trading at the biggest discounts to claimed net assets in their annual reports but the following table includes the deficit figure that we used in the last edition and then provides an update on what has happened since:
News Corp: $18 billion deficit now cut to about $8 billion courtesy of $13 billion write-down but shares have weakened further.
Wesfarmers: $9 billion deficit left untouched in today's results although shares have recovered a little so deficit now about $8 billion.
Westfield: $7.5 billion deficit to get a $3 billion asset value cut, although this will be more than offset by currency moves and stock remains weak so deficit could yet top $10 billion when we see the results.
GPT: $4.7 billion deficit has blown out to about $6 billion with tumbling unit price, although today we've been promised $1.4 billion in write-downs plus $900 million in adverse currency and hedging movements so it will come back somewhat when we see the results.
Centro Properties Group: $4 billion deficit will come down after Friday's foreshadowed $980 million write-down directly affecting the parent company's balance sheet.
Stockland: $4.1 billion discount now cut to $3.7 billion after $1 billion write down, but stock is still weakening as the whole sector tanks and Stockland also gets hit by the contagion factor of its 10% stake in GPT and similar investments in the teetering FKP.
Macquarie Countrywide: $3 billion and getting worse
Fairfax Media: $3 billion deficit should be addressed in the forthcoming results with big write-downs by the new CEO, Brian McCarthy.
Centro Retail: $2.7 billion deficit will come down after $700 million in write-downs flagged last Friday.
Goodman International: $2.7 billion and getting worse.
Babcock & Brown Infrastructure: $2.7 billion and hard to see a lot of improvement.
Macquarie Office: $2.6 billion and getting worse with units hitting 13.5c today against recent $500 million capital raising at 20c.
Mirvac: $2.5 billion and getting worse
Babcock & Brown: $2.4 billion, but at least have admitted will take write-downs to go negative.
Macquarie Infrastructure Group: $2.2 billion and getting worse
Macquarie Airports: $2.2 billion and getting worse
Valad Property Group: $2.2 billion and difficult to see much residual value
Gunns: $2 billion and was getting worse before 13% share price rally today.
Futuris joins the write-downs club with new CEO wielding the axe
The avalanche of write-downs are starting to come and today our list tracking them chronologically has the following two new entries:
GPT: February 16, 2009: flagged $1.4 billion in write-downs in this reply to an ASX query.
Futuris: February 16, 2009: Malcolm Jackman came in as the new CEO in September 2008 and managed a net loss of $329 million in the December half after $346 million in write-downs.
Isn't it amazing how companies with a new CEO are so much more likely to wield the axe. We've even listed them all here.
Similarly, go here to check out the full list of write-downs across the board as they've unfolded since August last year.
We've also updated our $100 million loss club list to include Futuris. So far, there have only been six losses exceeding $100 million this reporting season but that will probably hit 20 by the end of February.
Australia's most undercooked balance sheets
Whilst lots of Australian companies are now saddled with grossly overvalued balance sheets, here is a list of 10 stocks that don't value themselves at anything near their current market capitalisations.
Austar: claimed in August 2008 to be worth negative $315 million when the market capitalisation is still above $1 billion even after a 60% plunge. This is because previous write-downs were excessive and they don't value things like their distribution systems or subscriber base at anything like what they're worth.
BHP Billiton: the balance sheet released in February 2009 shows total equity of $US39.65 billion when the market values the company at more than $US100 billion. The auditor is Peter Nash from KPMG in Melbourne.
Brambles: the balance sheet released in February 2009 shows net equity of $US1.25 billion which is way underdone given the market capitalisation is still above $8 billion even after a woeful half year result.
Computershare: monopolies generate great returns but these don't show up on the balance sheet with historical cost accounting. The board and auditor Simon Gray from PwC claim net assets of $790 million when the market capitalisation has remained above $4 billion during the market meltdown.
Consolidated Media Holdings: the Packer family's media rump is debt free and capitalised at more than $1 billion even after the market chaos, yet the latest balance sheet only claims net equity is $112 million. Douglas Bain from Ernst & Young is the auditor.
Woolworths: Australia's biggest retailer has generated enormous goodwill through its supermarket franchise which isn't recognised on a balance sheet that claims net assets of only $6.24 billion. Even after the market fell 50%, Woolies was capitalised at more than $30 billion. The auditor is Rod Smith from Deloittes.
Nylex goes to its grave still claiming to be worth $88.3 million
Our list tracking the claimed balance sheet values of companies that collapse has just had the following entry added after the events of last Friday when Nylex called in the undertakers from McGrath Nichol.
Nylex: the creation of former BTR CEO Alan Jackson which launched as Austrim and then rebranded and embarked on a long death dive to finally call in the administrators in February 2009. The full year accounts for 2007-08 released in August 2008 claimed to have net assets of $88.3 million. The auditor was Michael Bray from KPMG.
Whilst $88.3 million doesn't put it anywhere near the top fo the table which features ABC Learning with claimed net assets of $2.23 billion and Pasminco at $1.5 billion, it would have been nice if the directors and auditors of Nylex got the balance sheet a bit closer to the negative it has finished up at before raising the red flag.
Meanwhile, The Australian had this interesting story about Kerry Stokes selling his 19.2% stake in Nylex to one of the directors for $670,000 the day before the administrators were called in.
Whilst ASIC reckons it is having a look, I suspect this is just a bit of tax shuffling amongst friends.
Whatever the case, Nylex will go down as one of the billionaire's biggest investment disasters with almost $100 million lost from various injections over the years.
Disgraceful Brumby will let Woolies manage 100% of Victorian pokies clubs
The new pokies bill now tabled in parliament makes it possible for all Victorian clubs to be managed by one entity so long as compensation is not linked to pokie profits.
While ownership of pokie hotels is limited to 35%, there is no limits on clubs. Amazingly, it is arguments on this very point that the Victorian Government blacked out of submissions by Paul Bendat from www.pokieact.org.
Stand by for Woolworths and its colourful partner Bruce Mathieson to extend their influence even further.
Ironically, this Friday is Woolworths' Backing our Farmers Day. If Woolies truly cared about customers or their community more generally, it would get out of the pokies business altogether.
Instead, Australia's biggest pokies operator is looking forward to another windfall from the $12 billion government handout next month.
Commonwealth Bank SPP horrors
So infuriated were we with Commonwealth Bank's share purchase plan diddle explained in the last edition that we fired off a letter to The AFR on Thursday which was actually published as follows:
CBA shares went ex the $1.13 fully franked interim dividend today and finished $1.78 lower at $29.62, which is still a handy premium to the $26 share purchase plan price.
Westpac's recent raising was marginal during the pricing period yet still attracted $442 million in funds. Given that CBA has 750,000 retail shareholders, the SPP could theoretically raise $7.5 billion and I suspect it will go close to raising $1 billion.
QBE, another reluctant adopter of SPPs, set a very ordinary precedent recently when it placed $2 billion worth of shares with institutions but then cut back its retail investors from $226 million to just $114 million. What odds CBA will do likewise given their recent appalling PR tactics over everything from those threats to Merrill Lynch to the Victorian bush fires.
Will the Murdoch press report that $US2.8bn Dow Jones write-down?
The following email was sent to The Wall Street Journal's News Corp reporter Shira Ovide:
Hi from Down Under Shira,
Just a quick query, has WSJ reported the $US2.8 billion Dow Jones write down anywhere? I didn't spot it in your original story.
Cheers, Stephen Mayne
The reply was as follows:
Hi, Stephen,
I hope you're doing well, and staying safe from the wildfires.
On your question: In the original News Corp. earnings story, we reported the overall $8.4 billion write down, which included the $2.8 billion for Dow Jones. The $2.8 billion figure, however, wasn't broken out until the next day in a regulatory filing.
Regards, Shira
I emailed again to ask if the write-down was subsequently reported, but haven't heard back and suspect the situation remains that no Murdoch-owned paper has yet reported the embarrassing $US2.8 billion write-down just 14 months after the biggest cash takeover in the history of the company.
Radio, TV and video files
Listen to this interview with Mike Smith on 4BC Brisbane discussing China's $30 billion buy up of Rio Tinto giving it an 18% stake.
Check out some of the action from Sky's Business View program last Friday, including the Rio Tinto debate and some predictions for this week about asset write downs that certainly didn't come true with Wesfarmers.
Given that our mate Nick Xenophon has caused such a stir in recent days, we may as well re-run this video from 2007 when The Mayne Report 'kidnapped' the Greek giant killer.
Recent Share Trades
As stocks continue to fall and companies announce profit write-downs as documented here, the Mayne Report has continued to become more liquid selling more stocks since the last update. Check out all our share trades so far in 2009.
February 12
Dominion Mining Ltd: sold 228 at $1.50
Anglogold Ashanti Ltd: sold 50 at $9.01
APA Group: sold 135 at $3.10
February 10
Auckland International Airport Ltd: sold 228 at $1.50
February 9
Nanosonics Ltd: sold 1,042 at 29c
February 4
Bank of Queensland: sold 663 at $7.27
January 29
Macquarie Office Trust: sold 22000 at 21c
January 28
Macquarie Office Trust: sold 75000 at 19c
That's all for now.
Do ya best, Stephen Mayne
* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.
We've got a pile of lively stuff in this week's edition so enjoy it full well.
China Inc launches agreed bid for Oz Minerals
If you thought the debate was getting hot over Chinalco's proposed $30 billion investment in Rio Tinto, the Chinese Government have just lobbed a $2.6 billion takeover bid on the table for the teetering Oz Minerals through China MinMetals. Check out the full presentation here.
I've been puzzled for weeks about why BHP Billiton doesn't just come along and buy Oz Minerals. The stock has been suspended for three months courtesy of a combination of the commodities crash and the global financial crisis.
Two fleeing French banks have been causing trouble, the board is completely discredited and it makes absolute sense for a big gorilla to come in and calm the situation down, whilst seizing control of a highly attractive portfolio of projects. BHP has some big decisions to make in the coming weeks and it really is time they stopped lobbying Canberra over Chinalco and started lobbing some counter-bids for specific assets or whole companies.
What does China want with Rio?
Debate over the proposed $30 billion deal between Rio Tinto and Chinalco continues to divide the investment and media communities, although so far I'm surprised that so many investors have come out dead against it.
Then again, never before has China Inc, or any government for that matter, written such a big cheque on a single deal.
And whilst China last week publically committed to retain their $US682 billion investment in US bonds, which delivered an excellent 15% return over 2008, this $US19.5 billion Rio Tinto play is a very strategic and important allocation of surplus Chinese capital.
Did you notice the $12 billion in convertible bonds were priced at $US45 and $US60 a Rio share respectively? The Australian dollar and British pound are both trading well below their long term average against the US dollar. If the US dollar was to suddenly tank due to lack of Chinese support for their bonds, then hey presto, Chinalco's investment in either the Australian or UK version of Rio suddenly gets a whole lot cheaper.
The US government did a record $US21 billion bond issue on Thursday night and the big question is whether the Chinese will continue to lend the US cash as they run annual deficits exceeding $US1 trillion to bail out their economy. Stratfor produced an excellent analysis of the situation on Business Spectator.
Hillary Clinton's February 20 visit to China will be fascinating, as this excellent Bloomberg article last Friday explains.
Interestingly, the Federal Government did another $600 million bond issue on Friday morning and raised six year money at just 3.7%. Rio Tinto is paying more than 9% for its $12 billion in Chinese convertible bonds, which does look excessive.
Given the growing revolt from Rio's shareholders I reckon the Chinese will only get this deal over the line if it is sweetened and the easiest way to do that would be to lower the coupon on those bonds to, say, 7%.
Why aren't some Rio Tinto directors falling on their swords?
The most ridiculous aspect of the Chinalco deal is that none of the 15 existing Rio Tinto directors are quitting, so the board will be expanded by the two Chinalco directors.
Whilst the EGM to approve the deal in May will be highly contentious shareholders will get an early crack at the board at their AGMs in London on April 15 and Sydney on April 20.
The flights are already booked for this one because it will be red hot.
Here are the three directors who should be shoved out the door first:
Paul Skinner, chairman: former Shell executive who lives in Winchester, England, and will be retiring mid-year after 8 years on the board
Tom Albanese, CEO: had the top job since March 2006 when the American replaced Australian Leigh Clifford at the London head office.
Guy Elliott, finance director: London-based English chap who has been on the board since 2000.
One thing is for sure in all of this. The boneheaded Poms who dominate the Rio Tinto board and trashed a great empire should be axed.
With Britain on the rocks, the Rudd Government should use this opportunity to return to the ideas pushed by Ralph Willis at the time of the original Rio Tinto/CRA dual listed company construction in 1995.
Why not insist that Rio Tinto shift its head office from London to Melbourne, have its primary listing on the ASX, have an Australian chairman and a majority of Australian-based directors?
Transurban CEO and former BHP Billiton finance director Chris Lynch would be the perfect replacement for the discredited Rio CEO Tom Albanese and they should bring back the likes of Leigh Clifford, John Ralph and Leon Davis to join the Rio Tinto board through a stabilisation process.
If the Chinese are prepared to pay another big price, then who cares if they get a couple of board seats as long as the ridiculous current situation is changed which sees Rio run out of London by a reckless American CEO and a cabal of incompetent knights, lords and British establishment types.
Updating all the Mayne Report foreign ownership lists
We've packaged up all our foreign ownership lists here, but particularly draw your attention to the newly expanded list tracking ownership of Australia's major resource projects.
Foreign government investment in Australia
See how the Chinese and Singapore Government are set to own more Australian business assets than our own government.
Foreign companies turning over more than $200m a year Down Under
This list shows just what a large proportion of the Australian economy is already run by foreign companies.
Australian companies which generate more than $200m a year offshore
There aren't even 100 of these, but we should salute them.
Foreign companies unhappy with their experience Down Under
The global financial crisis has substantially changed this list in recent times.
Foreign companies that have done well in Australia
There aren't as many of these companies around any more.
Banging the drum on Today Tonight
Video about foreign ownership of Australian companies.
What the commentators are saying on Rio
Here are links to some of the commentary over Rio Tinto in recent days:
China will control most of our industry
Robert Gottliebsen, Business Spectator
Stop all this Sinophobia
Michael Pascoe, Fairfax websites
Let the Chinese in, but bring Rio Down Under
Mayne, Crikey
Approve the deal and partner with China
Mayne, Sky's Business View
Rio strapped to China Inc forever
Bartho, Business Spectator
A stinker of a deal for Rio Tinto
Alan Kohler, Business Spectator
China trying to screw BHP
Alan Kohler, Business Spectator
Rio's Chinese takeaway
Michael West, Fairfax websites
Rio Tinto is road testing our future
Terry McCrann, Herald Sun
Could BHP sue over inflated Escondida valuation?
Barry Fitzgerald, The Age
Will the China Inc investments go ahead elsewhere?
Whilst Chinalco and Rio Tinto are pushing Labor's buttons by claiming their union will save 2000 jobs by locking in unfinanced expansion projects, this only tells half the story.
China Inc has made a series of investments in second tier or greenfields Australian resource projects which will be under a cloud if the Rio partnership can satisfy its future supply needs.
We've updated the Mayne Report list tracking foreign government investments in Australia and now ask the very relevent question about what future these investments have?
For instance, the then chairman of Cape Lambert Iron, Ian Burston, told shareholders at the 2007 AGM that one of the reasons the $2 billion project was likely to go ahead including the following:
"With the proposed merger of Rio and BHP-Billiton causing a degree of concern among iron ore purchasers, the Chinese are particularly keen to diversify and secure their sources of supply."
Here is a list of Chinese government investments and projects that I reckon could be effected by the Rio play:
Sinosteel: completed a $1.37 billion takeover of WA iron ore hopeful Midwest Corp after a 2008 takeover bid pitched at $6.37 a share. Would like to buy neighboring Murchison Metals, but FIRB has limited it to a maximum 49%.
Oakajee: five Chinese companies were given FIRB approval in January 2008 to develop the $3.5 billion Oakajee port and rail project in WA and then former WA Premier Alan Carpenter announced the winning tenderer in August 2008, but construction hasn't started yet to service all those growth projects in the mid-West region near Geraldton.
Chalco: in September 2007 Queensland government awards rights to develop $3 billion bauxite project near Aurukun, which Noel Pearson has claimed includes an unfair forced land grab. This is now in doubt as Chinalco will be keen to focus its attention on expanding Rio Tinto's Queensland bauxite operations at Weipa.
Anshan Iron & Steel: paid $39 million in September 2007 for 13% of iron ore miner Gindalbie and signed $1.8 billion joint venture deal to develop the Karara Iron Ore project in Western Australia. Backed this up with a $162 million placement at 85c a share to Ansteel in February 2009 which increased its stake to 36.3%.
Shougang Corp: China's fourth biggest steel group spent $56 million in March 2007 buying 13% of iron ore developer Australian Resources and has an option to inject a further $42 million. Shougang has agreed to fund the $US2.1 billion development of the Balmoral South mine and port project in WA thorugh an interest free loan and also buy the entire output.
China Metallurgical Group: paid $400 million for the Cape Lambert Iron ore project in WA in 2008, which is now in doubt given that China has secured its supplies through Rio Tinto.
Resource Development International: Gold Coast-based Clive Palmer who still claims to be worth more than $5 billion was hoping to raise more than $1 billion from Chinese investors through a float of this iron ore venture that is still to get off the ground.
Finally on Rio, listen to the toffy Rio chairman Paul Skinner defend his shabby treatment of Australia at last year's Australian AGM in Brisbane.
Six names on in the 10 figure write down club for 2009 - so far
Stockland, News Corp and Babcock & Brown have now been joined by Rio Tinto, Oz Minerals and GPT in the "10 figure write-down club".
Yep, they've all taken an axe of more than $1 billion to their balance sheets.
The $1 billion Stockland write-off last week didn't really make the grade because it remains capitalised at less than $4.5 billion when claimed net assets only fell from $8.5 billion to $8 billion.
The same can't be said for Rio Tinto which took $US8.4 billion in write-downs on the ill-fated Alcan acquisition which reduced its net assets from $US28.62 billion to just $US20 billion.
At today's closing price of $50.80, Rio is capitalised at more than $US40 billion, so it actually deserves a place on this list tracking the most under-valued Australian balance sheets.
Meanwhile, stand by for a huge abnormal profit on the $20 billion worth of sales that Rio announced in the Chinalco deal - if it gets approved by shareholders, of course.
Even News Corp's $US8.4 billion write down - an identical figure to Rio's - only went about half way to breaching the gap between book value and market capitalisation.
Oz Minerals has probably gone to the other extreme because Friday's announcement flagged write-downs of between $2.3 billion and $2.8 billion. With the stock having last traded at 55c, this capitalises Oz Minerals at $1.7 billion yet the latest balance sheet claims it has net assets of $3.3 billion.
Lop $2.8 billion off that and you've got the directors predicting the stock will plunge to about 15c, yet the company's biggest commodity is gold which continues to soar.
Obviously under historical cost accounting, the Oz Minerals directors can't write-up the value of the gold assets such as Prominent Hill, Golden Grove, Martabe in Indonesia and the trophy operation in Laos. (These last few papagraphs were written before today's Chinese takeover bid for all of Oz Minerals at 82.5c a share.)
Finally, the GPT disclosure today was unusual because it came in response to an ASX query. Investors were told the Babcock & Brown joint venture will be written down by $700 million and direct property holdings will be marked down by another $700 million, making $1.4 billion in total. Throw in $900 million of mark-to-market losses on currency and interest rate plays and it is getting really ugly.
However, with GPT shares diving another 3c to a record low of 51c today, the market capitalisation has fallen to just $2.3 billion. Write-downs and losses of $2.3 billion after a recent $1.6 billion capital raising will still see directors and auditor David Armstrong from PwC claiming the business is worth more than $7 billion. That's quite some disconnent.
Then again, Wesfarmers did precisely nothing in today's results about the $8 billion discount in its market capitalisation to book value courtesy of the ridiculously over-priced $19.3 billion Coles acquisition. However, the Wesfarmers results actually looked pretty good and the stock finished marginally higher in a weaker market.
That still doesn't mean the board and auditor Ernst & Young should have dodged the write-down. If News Corp could write off $US2.8 billion on Dow Jones just 14 months after settling on the takeover, then Wesfarmers should have done likewise with Coles.
What companies trading at huge discounts have done so far
We've updated our list looking at companies trading at the biggest discounts to claimed net assets in their annual reports but the following table includes the deficit figure that we used in the last edition and then provides an update on what has happened since:
News Corp: $18 billion deficit now cut to about $8 billion courtesy of $13 billion write-down but shares have weakened further.
Wesfarmers: $9 billion deficit left untouched in today's results although shares have recovered a little so deficit now about $8 billion.
Westfield: $7.5 billion deficit to get a $3 billion asset value cut, although this will be more than offset by currency moves and stock remains weak so deficit could yet top $10 billion when we see the results.
GPT: $4.7 billion deficit has blown out to about $6 billion with tumbling unit price, although today we've been promised $1.4 billion in write-downs plus $900 million in adverse currency and hedging movements so it will come back somewhat when we see the results.
Centro Properties Group: $4 billion deficit will come down after Friday's foreshadowed $980 million write-down directly affecting the parent company's balance sheet.
Stockland: $4.1 billion discount now cut to $3.7 billion after $1 billion write down, but stock is still weakening as the whole sector tanks and Stockland also gets hit by the contagion factor of its 10% stake in GPT and similar investments in the teetering FKP.
Macquarie Countrywide: $3 billion and getting worse
Fairfax Media: $3 billion deficit should be addressed in the forthcoming results with big write-downs by the new CEO, Brian McCarthy.
Centro Retail: $2.7 billion deficit will come down after $700 million in write-downs flagged last Friday.
Goodman International: $2.7 billion and getting worse.
Babcock & Brown Infrastructure: $2.7 billion and hard to see a lot of improvement.
Macquarie Office: $2.6 billion and getting worse with units hitting 13.5c today against recent $500 million capital raising at 20c.
Mirvac: $2.5 billion and getting worse
Babcock & Brown: $2.4 billion, but at least have admitted will take write-downs to go negative.
Macquarie Infrastructure Group: $2.2 billion and getting worse
Macquarie Airports: $2.2 billion and getting worse
Valad Property Group: $2.2 billion and difficult to see much residual value
Gunns: $2 billion and was getting worse before 13% share price rally today.
Futuris joins the write-downs club with new CEO wielding the axe
The avalanche of write-downs are starting to come and today our list tracking them chronologically has the following two new entries:
GPT: February 16, 2009: flagged $1.4 billion in write-downs in this reply to an ASX query.
Futuris: February 16, 2009: Malcolm Jackman came in as the new CEO in September 2008 and managed a net loss of $329 million in the December half after $346 million in write-downs.
Isn't it amazing how companies with a new CEO are so much more likely to wield the axe. We've even listed them all here.
Similarly, go here to check out the full list of write-downs across the board as they've unfolded since August last year.
We've also updated our $100 million loss club list to include Futuris. So far, there have only been six losses exceeding $100 million this reporting season but that will probably hit 20 by the end of February.
Australia's most undercooked balance sheets
Whilst lots of Australian companies are now saddled with grossly overvalued balance sheets, here is a list of 10 stocks that don't value themselves at anything near their current market capitalisations.
Austar: claimed in August 2008 to be worth negative $315 million when the market capitalisation is still above $1 billion even after a 60% plunge. This is because previous write-downs were excessive and they don't value things like their distribution systems or subscriber base at anything like what they're worth.
BHP Billiton: the balance sheet released in February 2009 shows total equity of $US39.65 billion when the market values the company at more than $US100 billion. The auditor is Peter Nash from KPMG in Melbourne.
Brambles: the balance sheet released in February 2009 shows net equity of $US1.25 billion which is way underdone given the market capitalisation is still above $8 billion even after a woeful half year result.
Computershare: monopolies generate great returns but these don't show up on the balance sheet with historical cost accounting. The board and auditor Simon Gray from PwC claim net assets of $790 million when the market capitalisation has remained above $4 billion during the market meltdown.
Consolidated Media Holdings: the Packer family's media rump is debt free and capitalised at more than $1 billion even after the market chaos, yet the latest balance sheet only claims net equity is $112 million. Douglas Bain from Ernst & Young is the auditor.
Woolworths: Australia's biggest retailer has generated enormous goodwill through its supermarket franchise which isn't recognised on a balance sheet that claims net assets of only $6.24 billion. Even after the market fell 50%, Woolies was capitalised at more than $30 billion. The auditor is Rod Smith from Deloittes.
Nylex goes to its grave still claiming to be worth $88.3 million
Our list tracking the claimed balance sheet values of companies that collapse has just had the following entry added after the events of last Friday when Nylex called in the undertakers from McGrath Nichol.
Nylex: the creation of former BTR CEO Alan Jackson which launched as Austrim and then rebranded and embarked on a long death dive to finally call in the administrators in February 2009. The full year accounts for 2007-08 released in August 2008 claimed to have net assets of $88.3 million. The auditor was Michael Bray from KPMG.
Whilst $88.3 million doesn't put it anywhere near the top fo the table which features ABC Learning with claimed net assets of $2.23 billion and Pasminco at $1.5 billion, it would have been nice if the directors and auditors of Nylex got the balance sheet a bit closer to the negative it has finished up at before raising the red flag.
Meanwhile, The Australian had this interesting story about Kerry Stokes selling his 19.2% stake in Nylex to one of the directors for $670,000 the day before the administrators were called in.
Whilst ASIC reckons it is having a look, I suspect this is just a bit of tax shuffling amongst friends.
Whatever the case, Nylex will go down as one of the billionaire's biggest investment disasters with almost $100 million lost from various injections over the years.
Disgraceful Brumby will let Woolies manage 100% of Victorian pokies clubs
The new pokies bill now tabled in parliament makes it possible for all Victorian clubs to be managed by one entity so long as compensation is not linked to pokie profits.
While ownership of pokie hotels is limited to 35%, there is no limits on clubs. Amazingly, it is arguments on this very point that the Victorian Government blacked out of submissions by Paul Bendat from www.pokieact.org.
Stand by for Woolworths and its colourful partner Bruce Mathieson to extend their influence even further.
Ironically, this Friday is Woolworths' Backing our Farmers Day. If Woolies truly cared about customers or their community more generally, it would get out of the pokies business altogether.
Instead, Australia's biggest pokies operator is looking forward to another windfall from the $12 billion government handout next month.
Commonwealth Bank SPP horrors
So infuriated were we with Commonwealth Bank's share purchase plan diddle explained in the last edition that we fired off a letter to The AFR on Thursday which was actually published as follows:
CBA shares went ex the $1.13 fully franked interim dividend today and finished $1.78 lower at $29.62, which is still a handy premium to the $26 share purchase plan price.
Westpac's recent raising was marginal during the pricing period yet still attracted $442 million in funds. Given that CBA has 750,000 retail shareholders, the SPP could theoretically raise $7.5 billion and I suspect it will go close to raising $1 billion.
QBE, another reluctant adopter of SPPs, set a very ordinary precedent recently when it placed $2 billion worth of shares with institutions but then cut back its retail investors from $226 million to just $114 million. What odds CBA will do likewise given their recent appalling PR tactics over everything from those threats to Merrill Lynch to the Victorian bush fires.
Will the Murdoch press report that $US2.8bn Dow Jones write-down?
The following email was sent to The Wall Street Journal's News Corp reporter Shira Ovide:
Hi from Down Under Shira,
Just a quick query, has WSJ reported the $US2.8 billion Dow Jones write down anywhere? I didn't spot it in your original story.
Cheers, Stephen Mayne
The reply was as follows:
Hi, Stephen,
I hope you're doing well, and staying safe from the wildfires.
On your question: In the original News Corp. earnings story, we reported the overall $8.4 billion write down, which included the $2.8 billion for Dow Jones. The $2.8 billion figure, however, wasn't broken out until the next day in a regulatory filing.
Regards, Shira
I emailed again to ask if the write-down was subsequently reported, but haven't heard back and suspect the situation remains that no Murdoch-owned paper has yet reported the embarrassing $US2.8 billion write-down just 14 months after the biggest cash takeover in the history of the company.
Radio, TV and video files
Listen to this interview with Mike Smith on 4BC Brisbane discussing China's $30 billion buy up of Rio Tinto giving it an 18% stake.
Check out some of the action from Sky's Business View program last Friday, including the Rio Tinto debate and some predictions for this week about asset write downs that certainly didn't come true with Wesfarmers.
Given that our mate Nick Xenophon has caused such a stir in recent days, we may as well re-run this video from 2007 when The Mayne Report 'kidnapped' the Greek giant killer.
Recent Share Trades
As stocks continue to fall and companies announce profit write-downs as documented here, the Mayne Report has continued to become more liquid selling more stocks since the last update. Check out all our share trades so far in 2009.
February 12
Dominion Mining Ltd: sold 228 at $1.50
Anglogold Ashanti Ltd: sold 50 at $9.01
APA Group: sold 135 at $3.10
February 10
Auckland International Airport Ltd: sold 228 at $1.50
February 9
Nanosonics Ltd: sold 1,042 at 29c
February 4
Bank of Queensland: sold 663 at $7.27
January 29
Macquarie Office Trust: sold 22000 at 21c
January 28
Macquarie Office Trust: sold 75000 at 19c
That's all for now.
Do ya best, Stephen Mayne
* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.