| Subject: Incorrect report on convertible note details West Australian 2/10 ERG |
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anonymous
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Date Posted: 13:42:41 10/02/02 Wed
In reply to:
anonymous
's message, "Important dates ERG 4/10 15/10 15/11--con notes--also Sydney expected." on 03:34:23 10/02/02 Wed
http://www.thewest.com.au/20021002/business/tw-business-home-sto73668.html
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US bank boards struggling ERG By Neale Prior
----------------------------------------------------------- TROUBLED transit ticketing group ERG has taken aboard US investment bank Babcock & Brown as part of a campaign to overcome what the company's directors admit is significant uncertainty about its ability to continue as a going concern.
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Babcock & Brown, a specialist in infrastructure debt financing and investment, is to provide an immediate $30 million loan facility to the Balcatta-based company and is to help structure financing for new projects as well as examine existing assets.
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Babcock & Brown Australian director Robert Topfer will join the ERG board, bringing the first new blood to the board since early 1998.
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The move comes as the company's options for repairing its balance sheet through equity raisings have been eliminated by its share price being slashed more than 95 per cent over the past two years and some key liabilities being linked to its share price.
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It is understood the ERG board is considering going to shareholders and listed convertible noteholders early next year with a proposal to restructure the $270 million convertible note debt that is set for repayment in October 2005.
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The board is believed to be considering a proposal for noteholders to convert about 5 per cent of their debt each quarter at a figure based on the prevailing share price as a means of reducing the company's chances of a potential debt repayment crisis in late 2005.
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The conversion price is based on ERG's share price of $4.50, compared with a record low closing price on Monday for the company of 16¢ and yesterday's closing price of 17.5¢. The stock rose yesterday after the company released its audited annual financial statements and news of Babcock & Brown's involvement.
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The accounts contained a continuation of warnings from directors and auditors about the uncertainty surrounding the company's capacity to continue as a going concern.
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It was revealed ERG had struck a deal with Belgian banking group Banksys to defer payment of a $20 million debt for its Proton World acquisition over the next 18 months.
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In a related matter, ERG has listed as a liability a ratchet payment that will have to be made in about two years to vendors of Proton World, who were issued ERG shares at a price of 65¢ as partial consideration early this year.
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It recorded a $40 million liability based on its current sharemarket value. The ratchet clause was previously a provision.
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The change of status did not affect the company's 2001-02 result, which was a loss of $243.9 million.
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ERG chief executive Peter Fogarty said the company's arrangement with Babcock & Brown included Mr Topfer's appointment.
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"Mr Topfer . . . has extensive international experience as a project and infrastructure financier, qualities that will assist significantly in the group's ongoing restructuring and strengthening of the balance sheet," Mr Fogarty said.
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The company's balance sheet problems have come amid the company becoming overstretched in financing major ticketing system installations and delays in the commencement or awarding of contracts, including its major Sydney contract that was tied up by litigation from a rival.
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Mr Topfer said yesterday ERG's model of financing contracts from the equity markets might have been valid 10 years ago or even three years ago but could not now be sustained.
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His group's interest in ERG was financing rather than equity, Mr Topfer said. He said Babcock & Brown would look at unlocking value already in the company's balance sheet and being involved in organising infrastructure financing for future contracts.
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ERG's contracts with government agencies globally were highly bankable and could be used as the basis for low-cost debt financing, he said.
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"They have tended to accept that these contracts should be cash-flow negative from the start," he said.
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"I don't accept that. Given the strength of the underlying business, it should not be."
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Babcock & Brown has interests in rail cars in the US, aircraft leasing and major infrastructure projects around the world. It acquired the Australian Industry Development Corporation from the Federal Government in 1997.
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