Tuesday 05 December 2017 by FIIG Research Company updates

Company updates – G8 Education, GPT Group, Mackay Sugar, StockCo and Royal Women’s Hospital

This week, Adani prices USD bonds, Lendlease foots RWH cladding repair bill, G8 Education trading update and Moody’s upgrades GPT Group. Mackay Sugar Chairman updates investors and we provide a FY17 earnings update for StockCo Holdings

Adani prices USD bonds, reduces refinance risk

On 1 December 2017, Adani Abbot Point Terminal Pty Limited (AAPT) priced USD500m of five year senior secured bonds with a coupon of 4.45%.

We believe that this is a positive milestone for AAPT, as the company has materially reduced the refinancing risk of AUD976m of debt maturing in November 2018. The AUD976m consists of AUD396m of medium term notes and AUD580m of bank debt. A recent Thomson Reuters article (24 November 2017) noted that AAPT has still to finalise a bank refinancing loan of up to AUD500m.

AAPT’s new senior secured notes are expected to be rated investment grade by both S&P and Fitch. Both credit ratings agencies have a stable outlook on the respective ratings, expecting that AAPT will, in general, be able to successfully refinance the close to AUD1bn of debt in the next six months. AAPT has experienced more challenges to its refinancing efforts than its peers, mostly due to the lack of appetite from major lenders to coal related infrastructure entities, in particular greenfield developments.

AAPT’s next debt is due in May 2020 when its AUD100m of senior secured notes will mature and another AUD170m of bank debt is due in November 2020.

Lendlease to foot bill on Royal Women’s Hospital cladding repairs

Lendlease will cover the cost of replacing combustible cladding on Melbourne’s Royal Women’s Hospital (RWH). RWH’s initial lower levels, completed by Leighton (now CIMIC), had suitable cladding for a low rise building, but is now non compliant due to the same cladding used on higher levels by extension contractor Cockram.

"Responsibility for costs will be determined on a case by case basis," a Health Department spokesman said.

"In some cases the cost of replacing non compliant cladding will be covered by the builders or developers responsible for individual building's construction."

As indicated in the AFR article published 4 December 2017, Lendlease to foot bill, replace cladding on Melbourne’s Royal Women’s Hospital, we believe there is no impact on RWH Finance’s cash flows and credit profile.

G8 Education update on trading performance and leadership team changes

On 4 December 2017, G8 Education (G8) (ASX:GEM) provided an updated on its trading performance for the financial year and changes to its executive leadership team.

The trading update forecasts an underlying EBIT of circa AUD160m for FY17, a 5% improvement from the previous period, after adjusting for movements in Long Day Care Professional Development Program (LDCPDP) funding. The reduction from the August 2017 forecast has been driven by the following key factors:

  1. A recent slowing of occupancy growth
  2. A change in regulatory requirements in relation to staffing ratios during breaks in NSW, SA and Victoria (effective from 1 October 2017)
  3. Accelerated training for G8 team members in various areas. This resulted is an AUD1m increase in the net outflows related to LDCPDP funding compared to the previous forecast

G8 also announced it has completed recruitment of its executive leadership team with new personnel in Marketing, Property and Business Development.

The full ASX announcement is available here

Moody’s upgrades GPT Group

Moody’s has upgraded GPT Group (the manager of GPT Wholesale Office Fund No 1) from A3 to A2. This rating is attributable to the group’s strong asset portfolio (in the office and retail sectors in particular, noting GPT’s diversification into the industrial sector) and its demonstrated commitment to a conservative financial profile.  

While Moody’s expects leverage and gearing to track upwards in the medium term, the strong property portfolio and commitment to a conservative financial policy should ensure that an A2 rating is maintained. The outlook is stable. Please note the issue itself is not rated by Moody’s.

Mackay Sugar Chairman makes first update

On 5 December 2017, Mackay Sugar’s (MSL) new Chairman, Mark Day, made his first update to growers and shareholders. Mr Day was appointed as a non grower director for MSL in May 2017, and Chairman in November.

The update provides his thoughts on MSL’s predicament and a brief update. Highlights to note are:

"...Basically since the decision in 2009 to build the cogeneration business and then the purchase of Mossman, debt increased substantially (by more than $165m) and the cash flow from these investments together with the existing business at that time has not met original forecasts. So the original objectives of these large investments have not provided the cash returns needed to properly service the debt associated with them. At the same time the core sugar business in Mackay has not had the earning capacity to counter the shortfalls in cash flow from these new investments due to sugar prices, crop size and importantly lower mill performance. My view is that these were very large investments for the size of Mackay’s business and they needed to achieve all of their originally stated forecasts to be a success, a very optimistic view for any new large project. Unfortunately all objectives have not been met and there have been some mediocre years in the sugar industry since 2009. So we find ourselves in the current position and we now have to solve this."

"Some people are worrying about the future of the industry. My view is that our mills will continue to crush and our sugar business has a future. If there is some change in ownership it should be viewed positively as it demonstrates an understanding and willingness to invest in the industry during tough times and take it forward. We need to remain internationally competitive so we must improve further"

2017 Season: "The 2017 season has seen a marginally improved crushing week on week versus 2016, however the factory rates and factory reliabilities are not at the level they should be to run a successful milling business or contribute to a successful sugar industry. I am sure that you see the impact of this daily in the bin supply at the sidings via the number of bins and zero hours. Performance is substandard and we need a strategy and funds to fix this over time. Given where we are now, it will take a few seasons to turn the operational performance around. It is not a one year fix. I have been through this situation before in a previous role."

Business sale: "Kidder Williams have now approached a number of large sugar companies from around the globe and also other investors interested and knowledgeable in this sector. The process is at an early stage. At present we are answering questions about MSL from interested parties and the next phase is to receive indicative offers from the groups that are interested in the opportunity. There is a lot of water to go under the bridge and many issues to work through before any proposal can be put forward to you our shareholders. As a result there is not much more to say at present other than we are waiting for their proposals and then Kidder Williams, management and the Board will assess the options and move forward from there."

Updates and circulars from Mackay Sugar are available here

StockCo Holdings FY17 earnings update

We have provided an update on StockCo Holdings with FY17 results as at 30 June 2017, outlook and forecasts

The link to the full update is available below. Note the content requires a FIIG login. 

StockCo Holdings FY17 earnings update