The Project of BrisConnections Company - Case Study Example

BrisConnections Company Tutor: College: Course: Date: BrisConnections Company BrisConnections Company was granted a contract that was taking at least 45 years to be able to employ their skills in designing ,constructing ,operating and generally maintaining the Airport link road that was in Brisbaine.Airport Link is a 6.7 kilometer multi-lane electronic free-flow toll road with dual 5.7 kilometer tunnels motorway (Benjamin &Jason 2003). Once completed, the Airport Link will operate as a multi-destination road connecting Brisbane’s northern suburbs with Brisbane’s Brisbane Central Business District and Brisbane Airport, the Clem Jones Tunnel and the Inner City Bypass (Hawthorne, 2009). The project takes up at least 15 km of tunneling which included the road, bus way tunnels and all the connecting ramps. Lane configuration will provide for separate traffic movements, with early decision points, to minimize traffic weaving and merging (Richard 2009) the rough estimates for the construction of the Airport Link were about $ 4.8 billion and it was scheduled for completion in the mid 2012. Section 6 6.1. The Market Value of BrisConnections Macquarie capital group and the construction firms Thiess and John Holland who were supposed to build, design and operate at least $4.9 billion, which was set aside for airport toll road in Brisbane (Hawthorne, 2009), set up BrisConnenctions. The company was functioning under a 45-year lease concession awarded by the state of Queensland in May 2008.two months later the company floated at $1 share, lost at 60% of its values in a day and by November, they had hit one-tenth of the Australian cent. Every year, the revenue of the company has remained relatively flat at $1.3B, but despite this, the company was able to make a net income from $56.9 m to $ 98.0 M. This led to a general decline in the percentage of sales, which was devoted to the income tax expenses from -1.32 % to -2.29 %. This was necessary to ensure that there would be some growth in the face of the flat revenues (Joshua 2011). BrisConnections Unit Trust received toll revenue under the concession and the escalated in line with Brisbane CPI. For the period that ended on June 30 2009, there was an annualized distribution yield of around 14% and for the remainder it yielded 8%.Brisconnnection had a fixed period as well as the prices. Leighton Holdings, which Australia’s largest project development and contracting group, guaranteed its performance. Thiess and John Holland subscribed for $200 million of equity at a market price that reflected an equivalent return to IPO investors. This was payable in installments for a period of two years (Benjamin &Jason 2003). It is important to analyze the financial statements of BrisConnections Management Company Pty Ltd, in order to get the current market value as at IPO. The capital Asset Pricing Model (CAPM) mainly provides a mechanism for determining the stock is priced depending on the return and its correlation with the market value (BrisConnections 2009). BSC continued to pursue its policy of working to ensure the completion of the construction and operations by 2012 in the next financial year. Due to this, it announced NPTA up to 84.44% to $13.34m for the first half o the year up to 31 December 2010.The revenues that were corrected from the operations, were a$727.76 m., up 19.96% from the PCP. Diluted EPS from the half-year amounted to 8.94 cents compared to 4.97 cents last year. The net operating cash flow was a$77.36, compared to A$31.73, pcp. There was no interim dividend declared. ASX closed its stock sales at 0.75 market value at August 2011, as it is depicted in the graph representation (Danny 2009). 6.2. The market Value of Unit Trust in December 31 After 31st of December 2011, there would be no circumstance that would significantly affect the operations of BrisConnections Group. According to the financial data of Brisconnection, the total EPS value when all abnormalities in terms of the shares and cents, seemed to be rising in the subsequent years (BrisConnections 2009). From the retail data that was released in March to June 31, it was clear that there was an increasing trend in the market value as shown in the graph. The estimated market value at 31 December would be a$1. Following the national paradigm for modeling the asset prices of BrisConnections, the Capital Asset Pricing Model (CAPM) has been captured using the measurement of risk (Charles &Kevin 2007). This model mainly assumes that there is a ready market with enough buyers and sellers and none of them has any misappropriate power, over the other. As of 30th June 2009, the pre-tax discount rate of 11.82 % was used .The cash flow model covered the full concession period The Airport Link was still under construction and as this helped to develop the cash flow model that covered the full concession period (Joshua 2011). When these assumptions were applied, an excess value was found to be in use over the carrying current value of the asset and due to this, the BrisConnections was able to prove that it had no impairment. Macquarie and Deutsche underwrote the company’s floatation. They used an installment model in which the investors were charged $1 up front and some other two payments were supposed to come in later in the following years (BrisConnections, 2009). The other two installments cost 1000 times higher than the previous trading value of stock. When the infrastructure made its way to the international stock market investors, it was during the time when the government sold an operational powerful plant, which was considered a tangible asset. According to Douglas Lachlan, BrisConnections was among the listed markets that were a home for assets and considered more mature and yielding by selling through installments (Edmund 2009). 6.3. How the acquisition of Mr. Bolton affect the value of BrisConnections Nicholas Bolton was a 27-year-old guy who was very mysterious and was a young-gun investor who was known to cause one of the worst share market floats in Australian history. When Mr. Bolton’s involvement with BrisConnections Company, caused some major changes and the effects hit hard the investors who at the moment are facing financial ruin He was accused of cutting a deal worth $ 4.5 million for his voting rights in BrisConnections the developer of Brisbane's $4.8 billion Airport Link tunnel (Danny 2009). Thiess John Holland, the design and construction contractor for the Airport Link, to scuttle today’s vote to wind up BrisConnections, bought the voting rights. The small unit-holders were very furious with Mr. Bolton as they counted on the losses that would set in BrisConnections. They extinguished he liabilities of $2 for every shared of BrisConnections that they owned. This has led to the shares dropping their worth to about 0.1 cent each to compensate every share that they had in BrisConnections (BrisConnections 2009). The same unit holders of the company viewed Bolton as the person who could remove them from the situation that they were now in. He went to court to ensure that the previous day’s vote took place (Benjamin &Jason 2003). Unfortunately, he had thrown this same vote away by selling his voting rights. Most of the retail investors seemed to be blind on the fact that BrisConnections was a stapled share, while was a special type of security that obligated them to make a few additional payments (Charles &Kevin 2007). This was due to the failed vote to wind up BrisConnections, which was brought about by Bolton. Bolton sold the voting rights to his stake in BrisConnections, but he maintains his economic interest over the 77.4 million units. His payment hinged on his resolutions being successfully voted down and now he remains in the same situation as other unit holders that are waiting to be called for the next $2 in installments. Mr. Bolton’s father was as businessperson, he was his associate, his name was John Howard Williams, and he claimed that he was also greatly involved in BrisConnections dealings (Benjamin &Jason 2003). The court did not believe this story and thought that this was just an excuse e that Bolton was looking for to justify his deeds. There were also some rumors that were going on that there were some parties that had been established out of the influence of Mr. Bolton. According to a report that he gave the Australian Finance Review, he commented that for a long time, he had been looking for a favorable opportunity to be able to be able to take up large interests and when he got involved with BrisConnections Company, he knew this was it. He managed to scoop a very large share through his company Australian Style Investments (ASI), which came with a liability of around $154 million (BrisConnections 2009). 6.4. Failure of BrisConnections How the financial crisis affected the global market after IPO: According to the analysis done by Australian Securities Exchange (ASX), BrisConnections was listed as a Unit Trust through the Initial Public Offering (IPO) of around $1.2 billion of stapled securities on 31st July 2008.It was definitely regarded as the most famous and largest IPO in Australia by the year 2008 yet most disastrous (Joshua 2011). It was still during the early period when the BrisConnections listed that most of its securities were owned by institutional investors like Macquarie group, just before the prices started to come down drastically. Due to the financial crisis in the market, Most of these same institutions diverted their stock to other retail investors’. The trading at 0.1 c could have been prevented by not allowing the Queensland Government to take part in underwriting private investment decisions, which were made by people or organizations seeking to make profit in the stock market. BrisConnections tried to salvage the whole situation by promoting the company through the media in April 2009 (Benjamin &Jason 2003). Those who listed BrisConnections units were designed to help fund the construction of the road, but are now among the most toxic assets tradable on Australian markets. Each 0.1¢ stapled unit comes with two $1 installments to be paid, which means the modest outlay of $500 lumbers a buyer with a $1 million debt. By using derivatives called interest rate swaps, this caused a $476 million black hole, given the recent round of aggressive interest rate cuts by the Reserve Bank. Companies were also forced to withdraw their stock offerings still in the dark days of 20008, when the prices were so low, due to the global financial crisis. This made all the investors to lose their interest when it came to trading shares that were considered risky now. BrisConnections stapled units were mostly accepted by this. Some prevention measures to the trading stocks at 0.1 cents: The Australian Securities and Investment Commission (ASIC) gave its contribution to the company by seeking to act on behalf of the investors. It demanded for the independent financial report of BrisConnnection. The company also threatened to sue the investors to be able to raise the necessary capital, which would be used to continue with the project, and they reduced the dividends by at least 99 per cent. At the same time (Chris 2009), Since the Company’s market value is nowhere near the top of its price cycle; the IPO would probably offer gainful information to help upgrade it. The main issue was that as long as BrisConnections remained to be a listed company, and then there would always be some liquidity. The Company has drawn $231 million of its IPO bridging finance facility with Macquarie, and a further $91 million was drawn on that facility (BrisConnections 2009). The unit holders held a meeting on winding up BrisConnections resolutions as an attempt to avoid all the extraordinary shareholders. They addressed all their shareholders and advised them on their current situation of the company (Joshua 2011). This would have given the investors the freedom to decide on their own and this would have left them with no reason to accuse BrisConnections. BrisConnections cannot create a market for securities. However, it is important to conduct briefings with analysts, brokers and institutional investors and investment community regarding BrisConnections’ business and prospects in compliance with BrisConnections continuous disclosure requirements. References Benjamin, Graham & Jason, Zweig 2003, the intelligent investor, Macpherson’s printing Group, Australia. BrisConnections 2009, broker presentation, Retrieved Aug 15, 2011 from BrisConnections 2009, "Construction". Airport Link and Northern Bus way website. BrisConnections, Retrieved August 15, 2011 from Charles, Beelaerts & Kevin, Forde 2007, Understanding Investments: An Australian Investor's Guide to Stock Market, Harvard Business School, USA. Chris, Wright 2009, BrisConnections: Infrastructure’s disconnect, Retrieved August 15 from Danny, John 2009, Byrnes in spotlight over BrisConnections" The Age. Dunn, James 2009, Getting Started in Shares for Dummies, Diacritech, China. Edmund, Tadros 2009, Nicholas Bolton's BrisConnections contortions have confounded and Angered many, Retrieved August 15, 2011 from Gans, Joshua 2011, BrisConnections Background, Core Economics, Retrieved August 15, 2011 From < http://economics.com.au/?page_id=1965> Gluyas, R 2009, "Toll road builder launches claims against defaulters". The Australian. Gluyas, Richard 2009, "Brinson securities auction fails to get a single bid". The Australian. Hawthorne, M 2009, "Calling Humphrey Bear, please come in". The Age. Perkins, J 1998, the Wallis Report and the Australian Financial System, University Press, Melbourne: Australia. The Honorable Stirling Hinchliffe 2010, Ministerial Media Statements. The State of Queensland. Trevor C Rowe AM DUniv 2010, BrisConnections Investment Trust and BrisConnections Holding Trust Interim Financial Report for the period ended 31 December 2009 Contents, Retrieved August 15, 2011 from Appendix Snapshots of The market value of Brisconnection (BSC: ASX) OPENING VALUE A$ 0.83 CLOSING VALUE A$0.75 DAY HIGH A$0.83 DAY LOW A$0.75 WEEK HIGH 09/16/10 A$1.00 WEEK LOW A$0.75 MARKET CAP 292.7 M AVERAGE VOLUME 10D 300.0 EPS TTM A$0.25 SHARES OUTSTANDING 390.3M EX-DATE 11/20/09 P/E TTM 3.0X (Joshua 2011) DATA ANALYSIS (Charles &Kevin 2007) The CAPM model was used to calculate the market value of Brisconnection as at 31st December 2011 using the financial statements of the company using the following equation: The above equation is rearranged to be able to calculate E (RI), which is the expected return on the capital asset It can also be presented as follows: r = rf + B (rm - rf) Where: Rf is the risk free interest rate that the Brisconnnection investors would be expected to receive. B is the stock beta that is mathematically used to describe the relationship between the movements of Brisconnnection stock versus that of the market. The investors use the stock’s beta to calculate their security versus that of the market. Rm is the expected market returns that the investors would be expected to receive after the company winds up (Benjamin &Jason 2003). Read More