As I said yesterday, Vanuatu is a group of 80 islands in the South Pacific Ocean, about three-quarters of the way between Hawaii and Australia.

And most recently, this small tropic paradise is gaining a new reputation as a “tax haven.” But does this island chain deserve that title?

we review the laws, political stability, economic climate, available legal entities, the tax situation, financial privacy rules, and the overall financial reputation of a jurisdiction. (Our top favorites remain Switzerland, Panama, Liechtenstein, and Hong Kong.)

For almost 40 years, Vanuatu certainly has been known to some as a tax haven. That explains why so many accountants, bankers, and lawyers are clustered in this small island nation.

But the archipelago’s reputation as an offshore financial center has been highly questionable, to say the least.

In 2000, the Asia-Pacific Group on Money-Laundering claimed the Russian mafia was laundering billions of dollars through offshore banking systems in the Pacific, including Vanuatu. There are about 2,000 registered institutions offering a wide range of offshore banking, investment, legal, accounting, and insurance and trust company services. Vanuatu also maintains an international shipping register in New York City.

In an unprecedented action in December 1999, a group of leading international bankers, pressured by the U.S., placed a ban on U.S. dollar denominated transactions involving three Pacific island nations - Nauru, Palau, and Vanuatu. The bankers accused them of laundering money for the Russian mafia and the South American drug cartels. At the time Vanuatu had 63 licensed offshore banks.

These bankers put a banking ban on these three countries because they were concerned about a report issued by the OECD’s Financial Action Task Force. The report called Vanuatu a “jurisdiction of prime concern” for money laundering because of these same mafia and drug cartel concerns.

Perhaps this small country is eager to distance itself from this past history, because the Vanuatu Government now welcomes outside investment to help develop their country.

The lack of income tax, capital gains tax, death and estate tax is an obvious attraction for outside investors. Plus, the country has no exchange controls. In 2002, following increasing international concern over money laundering, Vanuatu increased oversight and reporting requirements for its offshore sector.

But it was not until 2008 that Vanuatu agreed to release account information to other governments or law enforcement agencies. International pressure, mainly from Australian tax collectors, influenced the Vanuatu government to move to increased transparency.

Tax police raids in Australia this year have spurred a debate on whether Vanuatu will remain a tax-free haven.

Bottom line: We don’t recommended Vanuatu as an appropriate offshore financial haven, because of the history and other reasons stated above. But we also steer clear of this haven because it has a less developed offshore professional sector than other havens. Also, the government is not stable at all.

We wish the Vanuatu islanders well, and we remain open to change our current opinion. But in the meantime, there are too many other well-established offshore financial centers to choose from that deserve more serious consideration.

As you may have heard, a foreign-currency CD is one of the simplest ways to buy foreign currencies.

You’re not really trading one currency for another like in the foreign-exchange market. Nor are you investing with leverage like a currency option.

Instead, you’re buying and holding a foreign currency - just as if you were holding an average dollar-based CD.

Really, it’s a simple four-step process:

1. Decide to invest in a certain currency
2. Call your bank
3. Apply for the CD in a particular currency
4. Forget about your CD until it’s time to report your holdings on your taxes each year.

In fact, it’s so similar to your average dollar CD that it’s easy to forget the extra benefits you’re receiving by investing in a foreign currency CD.

So we thought we’d review these benefits quickly.

Benefit #1: You can actually beat inflation with a foreign-currency CD. Right now, you’re average dollar-based CD only pays 2 - 4%. If inflation is soaring above 6%, then you’re actually LOSING money over the long haul. But with a foreign currency CD, you can choose a stronger currency that has the power to appreciate faster than inflation.

Benefit #2: Two ways to profit. A foreign-currency CD earns interest similar to a normal dollar-based CD, but you also get an extra profit bonus if your foreign-currency appreciates in value vs. the U.S. dollar. In this way, your foreign-currency CD actually gives you two ways to profit.

Benefit #3: Instant diversification. If your entire portfolio is in dollars, then a simple foreign-currency CD gives you instant diversification to other stronger currencies around the globe. It’s one of the best ways to inch into the currency markets, if you’re not interested in trading.

The most important part of investing is to clearly understand what you’re investing in. In the currency world, most currency traders will talk about the “seven” majors.

The seven majors are the currencies that are traded most often on major brokerage desks around the world. The seven majors are generally paired with the dollar, so technically, the U.S. dollar would count as the eighth “major.”
Here’s a quick 30 second introduction to each of the major currencies…

U.S. Dollar (USD): The majority of trades in the Forex market involve the U.S. dollar against a different currency because it is currently used as the world’s reserve currency.

Euro (EUR): This is the new kid of the currency majors. Lately, the euro has been stepping up to take its place as a reference currency, as well as a larger component of foreign reserves by banks. It is also known as the anti-dollar because the euro tends to appreciate as the dollar depreciates.

Japanese Yen (JPY): The yen has been known as the carry-trade currency because for years, investors have borrowed yen to fund their carry-trades. Because Japan imports all of its oil, when crude oil prices begin to climb this hurts its economy and greatly impacts the value of the yen.

Swiss Franc (CHF): Also known as Swissie, it is sometimes called a ‘safe heaven,’ due to Switzerland’s independent stance, economy isolation, and strong private banking system. This in turn has made their currency very neutral.

The British pound (GBP): Frequently called, Cable or Sterling, the pound first got these nicknames because it was the first currency the Forex market traded through ‘cables’ across the Atlantic. The pound is the fourth most traded currency on the market and Great Britain’s economy is one of the strongest in Europe.

Canadian dollar (CAD): This currency’s unusual nickname, the Loonie, comes from the coins appearance which features a loon, a common Canadian bird, on the coins backside. Canada is a resource-focused economy, so the price of oil drives this currency along with commodities.

Australian dollar (AUD): Known as the Aussie, this currency is popular in the Forex market because of Australia’s currently high interest rates and generally stable economy. The Australian dollar is greatly influenced and driven by gold prices.

New Zealand dollar (NZD): Also known as the “kiwi,” the New Zealand dollar traditionally tracks the Aussie dollar’s path because these economies are tied together through exports. However, sometimes the New Zealand can fall while the Aussie dollar rises as we have recently witnessed.

Don’t expect any help from the building industry in halting the slide in economic activity in the domestic economy for the next year. And any recovery has now been postponed to 2009-10. The Reserve Bank board will discuss the seemingly remorseless slide in home building activity when it meets tomorrow, along with the continuing weakness in retail sales and consumer confidence, but that won’t be enough to get it to cut interest rates. It will wait for another month at least to see what will happen: this week we get labour force figures for last month, and home price indexes for June and 2007-08 which are likely to further confirm the cooling trend in the economy. But no change is anticipated, although the bank might send a message that the slumping level of local demand is pushing it towards a rate cut in the near future. (There is a small chance of a rate cut tomorrow, but don’t put your house on it). Last week we discovered that June was another miserable year for the Australian home building industry, with another fall in approvals for both private sector houses and non-house building. Building approvals fell by 0.7% in June, short of the 1% rise expected by the market compared to May. Following the very sharp fall in May, approvals are now 7.8% lower over the year – the weakest annual outcome in 2 years. This week we will get further confirmation of the slowdown with the housing finance figures for June.  The credit aggregates for June from the RBA last week showed a further slowing in the growth of housing finance to its lowest pace in more than a decade with finance growing by 0.6% in the month (the lowest since 1996) and 9.9% over the year to June. Nationwide, 158,938 homes were approved last financial year, a 3.6% increase on the previous year but below market estimates of underlying demand at about 180,000 a year. The Federal Treasury has estimated that demand for new homes is expected to rise to more than 200,000 by 2009-10, leaving a shortfall of about 50,000 homes, as only 160,000 homes are built. And in a survey released today, business forecaster, BIS Shrapnel sees no real improvement in the coming 12 months. It expects total Australian building commencements to edge up by just one per cent in 2008/09 as high interest rates keep dwelling construction well below underlying demand. BIS Shrapnel’s latest building activity forecast report, Building in Australia, 2008 to 2023, anticipates a 3% rise in new dwelling construction in 2008/09, offset by a 2% fall in non-dwelling building commencements. “In 2007/08, the value of new dwelling construction remained below the last peak in 2003/04. Housing construction has been weighed down by the strength of business investment.  For the first time ever, the national value of new housing construction in 2007/08 was exceeded by the value of private sector investment in engineering construction projects. This outcome represents a pronounced changing in gears for the Australian economy. “The strength of engineering construction activity, led by the mining sector, has boosted national economic growth and created shortages of skilled labour across many sectors. In response, companies have increasingly drawn on overseas workers to fill job vacancies. “As a result, net overseas migration jumped to an estimated 195,000 persons in 2007/08, and is forecast to reach a new record level of 230,000 persons in 2008/09. “This population boost is creating unprecedented demand for housing. National underlying demand for new dwellings was estimated to be 158,000 per annum over the five years to 2005/06.  “Underlying demand is forecast to average 185,000 new dwellings per annum over the 2008/09 to 2012/13 period,” BIS Shrapnel said. The group said the fact that dwelling construction remains in neutral has begun to affect the rest of the economy. “Australia cannot cope with much more expansion in business investment because the nation is running out of housing to accommodate the additional workers required to undertake this investment. “Housing shortages are leading to strong growth in rentals, which are now a major driver of inflation.  “According to the CPI index measure, national average rental growth was just three per cent in 2005/06, but the rate of growth accelerated to eight per cent in 2007/08. Growth in national average rentals is expected to rise to 10 per cent over the course of 2008/09. “Strong growth in rentals, combined with steady housing interest rates, are expected to support the value of new dwelling commencements in 2008/09. A reduction in housing interest rates is expected to be a trigger for the much needed strong upturn in housing in 2009/10.” BIS Shrapnel said that while residential building has been suppressed by rising interest rates, the level of non-residential building has increased strongly, rising by 54% from 2001/02 to 2007/08. Growth has been led by a boom in office building over the past three years.

 

“Demand for office space has been a corollary to the strength of mining activity, with Queensland and Western Australia enjoying booms in office building.

“However, growth in employment and retail sales are forecast to slow in 2008/09, under the weight of higher interest rates. In this environment, commercial building commencements are forecast to weaken, leading to falls in non-residential building commencements in 2008/09 (-2 per cent) and 2009/10 (-6 per cent).

“The downturn in commercial building will be an important factor in the overall building cycle in a number of cities.

“Due to shortages of skilled labour, it would be difficult for the industry to cope with a rise in apartment construction unless there is a substantial decline in office building.

“This change in sectoral drivers is expected to develop from 2009/10, and means that national total building commencements are likely to show only modest growth over the next five years”.

 

Here’s BIS Shrapnel’s outlook for building activity by state:

New South Wales

Building activity in New South Wales has been close to flat for almost a decade, and is due for an upturn. Building commencements are forecast to rise by 10 per cent in 2008/09, followed by an eight per cent increase in 2009/10. 

Expansion should be led by residential building, which has been running at very low levels for the past three years. Population growth has recovered, and housing supply is well below underlying demand, so the tight rental market will persist for the remainder of this decade.

Victoria

Building activity in Victoria has enjoyed a sustained upturn, rising by 25 per cent over the three years to 2007/08. Activity has been stimulated by Melbourne’s solid population growth. 

Total building commencements are forecast to decrease by five per cent in 2008/09, led by the beginning of a sharp downturn in commercial building commencements. Residential building is forecast to continue to expand, however, as the undersupply of housing remains widespread.

Queensland

Building activity in Queensland has been very strong, rising by 36 per cent over the five years to 2007/08. Housing starts and renovations recovered in 2006/07 and 2007/08, as the residential property market performed strongly in 2007. 

Demand for new dwellings is expected to slow in 2008/09, but the value of non-residential building commencements is expected to rebound due to a number of office and retail projects. Overall building activity will remain solid, so the outlook for industry employment remains very bright.

South Australia

In South Australia, building commencements showed the strongest growth of any state in 2007/08 (+14 per cent). Activity is being supported by strong population growth, primarily from net overseas migration. Total building is expected to rise by a further six per cent in 2008/09.

Western Australia

Western Australia has enjoyed seven consecutive years of expansion, which has seen a doubling in building activity, culminating in a nine per cent rise in 2007/08. 

However, housing starts are in decline, falling by an estimated 11 per cent in 2007/08 and expected to drop a further three per cent in 2008/09, due to poor housing affordability. While the level of non-residential building commencements has been extremely strong, this sector is forecast to decline by 15 per cent in 2008/09. 

Rising building costs are eroding the profitability of commercial building for some developers, which is expected to dampen the pipeline of new retail and warehouse buildings.

Tasmania

Building activity grew by an estimated 11 per cent in Tasmania in 2007/08, reaching a record high. The growth in 2007/08 was led by non-residential building commencements. 

Total building commencements are forecast to recede by 10 per cent in 2007/08, although this would still be a very high level of activity by historical standards.

Northern Territory

In the Northern Territory, building commencements increased by five per cent in 2007/08. The growth in 2007/08 was led by a 33 per cent surge in non-residential building commencements, which offset a downturn in residential building (-13 per cent). 

Total building commencements are expected to be volatile in 2008/09 and 2009/10, due to the incidence of major projects.

Australian Capital Territory

Building commencements in the Australian Capital Territory declined by 12 per cent in 2007/08, with a similar rate of decrease for residential and non-residential building. 

A recovery is forecast for 2008/09 (+11 per cent), before a further decline in 2009/10 (-14 per cent). The fluctuation in total building commencements is due to the incidence of office projects.

 

 

NEW YORK - US stocks fell 1.8 per cent after weak readings on economic growth and the job market touched off renewed concerns about the financial health of businesses and consumers.
The Commerce Department’s report that gross domestic product grew at a 1.9 per cent pace in the second quarter disappointed investors.
Investors were also concerned about Labor Department data saying that the number of people seeking jobless benefits jumped to the highest level in five years.
The Dow Jones Industrial Average lost 205.67 points, or 1.78 per cent, to 13,3787.02 and the Standard & Poor’s 500 broad-market index dropped 16.68 points to 1,267.38.
The tech-heavy Nasdaq composite declined 4.17 points to 2,325.55.
The yield on the 10-year US Treasury bond fell to 3.979 per cent from 4.048 per cent Wednesday and that on the 30-year bond dropped to 4.603 per cent from 4.638 per cent.

LONDON -European stocks closed generally weaker on US and eurozone data that dented market sentiment and in response to mixed corporate results.
In London the FTSE 100 index shed 8.80 points to 5,411.90.

FRANKFURT - The DAX gained 19.44 points to 6,479.56.

PARIS - The CAC 40 jettisoned 8.19 points to 4,392.36.

TOKYO - Japanese stocks closed little changed after a day spent as the market awaited a raft of corporate earnings and key US data.
The Tokyo Stock Exchange’s benchmark Nikkei-225 index gained 9.02 points to 13,376.81.

HONG KONG - Hong Kong share rose modestly, reflecting cautious trade ahead of key US economic data and interim corporate results.
The benchmark Hang Seng Index rose 40.5 points to 22,731.1.

WELLINGTON - The benchmark NZSX-50 index advanced 48.52 points to 3336.28.

SYDNEY - The Australian stock market is expected to fall about one per cent after Wall St was rocked by disappointing US economic growth and job market figures.
On the Sydney Futures exchange, the September share price index futures contract fell 48 points, or 0.96 per cent, to 4,930.
Today, the Australian Industry Group/PricewaterhouseCoopers Australian Performance of Manufacturing Index for July is released.
So to the Securities/Melbourne Institute inflation gauge for July and the Reserve Bank of Australia commodity price index for July.
Australian shares closed firmly in the black yesterday for the second consecutive day, driven by a positive US lead and higher prices overnight for copper, nickel and oil.
The benchmark S&P/ASX200 index added 40.7 points, or 0.82 per cent, to 4,977.4 while the broader All Ordinaries gained 43.9 points to 5,052.6.

NYMEX
Oil prices ended lower, pulling back from the previous day’s rally, as disappointing data on the US economy signaled further cutbacks in energy demand for the world’s thirstiest consumer.
In another sign Americans are driving less, US filling stations hungry for business continued to ratchet down retail gas prices, with a gallon of regular falling on average 1.7 US cents to $US3.909, according auto club AAA, the Oil Price Information Service and Wright Express.
Light, sweet crude for September delivery fell $US2.69 to settle at $US124.08 a barrel on the New York Mercantile Exchange, a day after the contract soared more than $US4 in the biggest one-day jump in two weeks.

COMEX
Gold strengthened as fear about a slowing US economy stimulated more interest in the perceived safe haven investment.
Gold for August delivery rose $US11.00 to settle at $US913.90 an ounce on the New York Mercantile Exchange.
September silver gained 32.5 US cents to settle at $US17.79 an ounce
Copper for September delivery firmed $US1.55 cents to $US366.15 a pound on the New York Mercantile Exchange.

Where has the resources boom gone? I don’t mean the one driven by iron ore or coal, nor oil, but by surging demand from China, India and the rest of the emerging world? Warning bells are sounding in metals markets and there is every indication that even in China, there are some rough times ahead. The shares prices of some Australian producers are reflecting the emerging weakness. last week we reported on Fox Resources, a small Australian miner deferring work on copper and nickel prospects and mine. Power shortages and a looming oversupply of some metals and weakening prices make for interesting decision making for some companies, especially if they are in China. And when a weakening market price happens to emerge as this power crunch happens, China seems to act as one to try and modify the market weakness and correct the imbalance in power demand. Take aluminium: China has put a freeze on the use of power in some northern provinces because of a shortage of electricity and weak prices. That has seen China Aluminium (Chinalco) cut production at a couple of major smelters for an indefinite period as the provincial governments maintain power supplies for farming and urban use. The cuts saw world aluminium prices hit successive highs last week for the metal, as the prices of nickel, copper, lead zinc and other metals fell or remained static as other producers joined in the reductions. Three month aluminium in London last week peaked at $US3 350 a tonne, a rise of 10% over a couple of days as China’s 20 leading smelters said they would cut output by 5% to 10% from July to reduce power consumption. Analysts reckon the move is a short-term decision to free up electricity for the summer because demand has dropped and there’s not the need there for as much metal as previously thought. Analysts estimate the reduction in Chinese output will cut global aluminium supplies by 1.3 million tonnes or 3%, which will help support the weak metal price, which happened late last week. Chinalco, or the Aluminum Corp of China, the nation’s largest producer, was among 20 companies that signed an agreement to cut output by 5% to 10% which is aimed at shrinking the rapidly growing surplus of the metal around the world.

 

That surplus was estimated at 458,000 tonnes in the first four months of the year, according to a report from the World Bureau of Metal Statistics.

The question is now whether Australian, European, South African or Canadian producers (BHP Billiton, Rio Tinto or Alcoa) will follow suit). They don’t have to, but they can watch world prices rise and benefit.

And yesterday a similar situation for zinc and lead smelters in China, but one driven by weak prices and demand for both metals, not so much by power problems.

China is the world’s largest producer of the metals and the major processors agreed to cut output by 10% from July to September to reduce costs and help ease a power shortage.

29 producers met at the weekend to discuss the production cuts. The companies reportedly also suggested the Chinese government buy the metals when prices are close to cost and store as the country’s strategic reserves.

The Association also said in a statement that cuts were also to ensure sufficient electricity for the Beijing Olympics next month, it said.

Zinc and lead prices surged on Friday on hopes of the cuts would be agreed to over the weekend.

Up till last week zinc prices had fallen 15% this year so far and lead by 23%, thanks to excess supply and weakening demand.

Chinese analysts reckon the agreement was reached between smaller and medium sized producers and the big players haven’t agreed to the cuts and will continue to churn out metal top drive down prices and some of the competition out of business.

The moves make a mockery of warnings from interested parties (such as trade unions) of job losses here if Australia adopts a greenhouse control measure like a carbon tax and or emissions trading that are too costly.

To move a business like an alumina refinery or aluminium smelter offshore requires money, to build one in China or India, requires money and a power agreement as well.

Money is in short supply at the moment, and will be for some time: but power is in short supply in China, India, South Africa and a host of emerging economies which it is claimed, will snap up our jobs and our companies which can’t or don’t want to change to meet the new greenhouse emission rules.

China is supposed to be building 1 to 2 power stations every 10 days or so. Many of these stations are cleaner than the ones in Australia, and yet they can’t bridge the supply gap. Nor can Southern Africa.

China doesn’t want our smelters, nor does South Africa or other countries in the region (for at least the next five to six years), or Canada or Europe or Brazil. Brazil plans to build more based on bauxite and alumina resources it has, as does Saudi Arabia.

June 23 2008 - Australasian Investment Review – (AIR)

Saudi Arabia has done its bit to try and put a lid on world oil prices, but more unrest in Nigeria has emphasised how fragile the market really is. As expected Saudi Arabia said it would raise its oil production by 2% from next month to try and curb record prices. Sources at the conference of producing and consumer nations told media outlets that Saudi Arabia was already pumping at an annual rate of 9.7 million barrels of oil a day, up from the 9.5 million barrel mark established a few weeks ago. Officially production will increase by 200,000 barrels a day to the 9.7 million barrels a day level, with Saudi Oil Minister Ali al- Naimi telling the media in Jeddah that state-owned Saudi Aramco will be soon adding 500,000 barrels, or 4.6%, to the kingdom’s total capacity with its Khursaniyah field. The extra crude will be heavier, less ’sweet’ crude which is in less demand on world markets. Normally that would have a positive impact, even though the higher production level has been around for 10 days and is not really ‘new’. It’s always better for market sentiment to have decisions like this official: but still have to find out the length of time the Saudis will pump crude at the higher daily rate. If it was for the rest of the year, it would have an impact. The news won’t be welcomed by OPEC members like Iran and Venezuela which want prices to be as high as possible to maximise production from their poorer quality fields and less productive fields. Opec officials made it clear they didn’t see any need for higher production, but Saudia Arabia is the heavy hitter in the group and will get its way.  But the latest news from Nigeria could undermine whatever help the Saudi move gives sentiment. Chevron, the US oil giant, whose facilities are the latest to be targeted by rebels, says it has halted onshore oil production after one of its pipelines in Delta state was “breached” by a suspected act of sabotage. News reports claimed a militant group said the attack was carried out by “patriotic youths”. Production of around 120,000 barrels a day of oil has been stopped by the damage to the pipeline, or around 5%-6% of the Nigeria’s daily output. The country is supposedly producing around 1.9 million barrels a day, but industry reports say the level if around 1.5 million barrels a day, hence the upward pressure on prices. Shell also said that it shut down an oil field in Nigeria because of militant action, halting shipments by as much as 190,000 barrels a day. Both the damage to the Chevron pipeline and Shell’s shutdown happened midway through last week. July crude oil rose $US2.69 to $134.62 a barrel in New York.

Gold fell Friday in New York on sales triggered by its rise above the $US900 an ounce mark.

Gold Thursday hit $US904.20 an ounce at the close of trading, the highest since May 28 and went higher to above $US910 an ounce Friday, which then triggered some profit taking.

Comex August gold fell 50c to $US903.70 an ounce, ending a five day rally. The metal finished the week up 3.5%.

July silver futures dropped 7.3c to $17.397 an ounce but closed 5% higher over the week.

Silver is up 17% for the year so far, while gold is only up 7.8%.

 

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Copper hit a one-month high Friday on the weaker dollar.

Comex September copper rose 5.25 USc to $US3.8305/lb in New York after hitting $US3.84, the highest for a most-active contract since May 19.

The price rose 6.7% last week for the biggest gain since late March.

On the London Metal Exchange, three month copper rose $US105, or 1.3%, to $US8,435 a tonne (or $3.83 a pound). After last week’s solid gains, the metal has now risen 26% so far in 2008.

In London three month aluminum rose 2.2% Friday to $US3,140 a tonne on the Lethe metal rose 6.6% last week, the best gain in two years.

 

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And despite easier grain and oilseeds prices Friday as the US Midwest floods settled, cattle futures prices rose to the highest since at least 1986 as beef prices continued to edge higher.

US wholesale beef prices are now at their highest in 13 months, as farmers withhold beasts from feedlots to lower costs. Cattle are being held for longer on the range to stock up on pastures and then put into lots for a shorter period of time. This in turn is producing leaner cattle, hence a rise in slaughtering and wholesale prices.

August cattle futures rose 1.4% Friday to $US1.0485 a pound on the Chicago Mercantile Exchange, after earlier reaching $US1.0615, the highest for a most-active contract since at least April 1986.

The US price of cattle is up 19% since the end of March led by the renewed upward move in corn prices, especially with the worst Midwest floods in more than 15 years damaging corn and soybean crops.

While corn futures prices on the Chicago Board of Trade are up 86% in the past year, they were easier Friday on the better weather in the flood zones in the Midwest.

December corn dropped 6 USc to $US7.555 a bushel on the Chicago Board of Trade: the price eased 1.2% over the week.

November soybeans fell 12.5 USc to $US15.09 a bushel and the price was off 3.3% over the full week, the biggest fall in three months.

 

The Babcock and Brown empire has an almost infinite capacity to shoot itself in the foot, repeatedly.

There the group was with two of its satellites, Babcock and Brown Wind (BBW) and Babcock and Brown Infrastructure (BBI) with good news for investors about distributions and encouraging talk about the future.

Both groups released their statements around 9.40 am, around 20 minutes after Transurban released its shock news of a big cut in its distribution and a change in the basis for paying its shareholders.

At 3.58 pm the weaker of the satellites, Babcock and Brown Power (BBP) released its statement on distributions and the news was all bad.

No payout for the June half and the 2009 payout slashed by almost 50%. Ouch and a big ouch to be made public with two minutes before trading finished.

Even though the company says the WA gas crisis won’t be ‘material’ as it did last week, the lowered expectations for 2009 give the impression that it will. In fact 2009 pre tax earnings look like falling into the low end of existing analysts forecasts.

Therefore there is every opportunity that the 2009 earnings will end up around $440 million, or lower.

BBP securities slumped 18C in that time (and into the after 4 pm ’settlement’) to 72C, a fall above 20%. Ouch, indeed. They had been down 3.5c at 86.5c before the late update.

BBP directors talked about paying distributions from operating cash flow in February when 13c per security was paid out, now there seems to be a need for operating cash flow because there’s no distribution for the June half and the 2009 payout will be lower.

Perhaps it was Transurban’s influence, but more likely it was the realisation that BBP couldn’t continue paying out securities holders from borrowed cash when the group itself needs something like $660 million (give or take a few million) over the next year for capital spending and debt reasons.

The group has still to nail down the $2.7 billion in refinancing for most of its assets. That is crucial to the continued existence of the group. Making a 13c a security distribution wouldn’t look good, given the problematic nature of the refinancing.

Image is everything, especially when a company is on the nose and credit is tight.

In its late statement the group said.

“BBP believes that it is prudent to strengthen and degear the balance sheet from current levels of approximately 68% towards the lower end of the previously stated target range of 60-65%.

“Given the refinancing of the BBPH corporate facility which is targeted for completion by the end of August as well as the previously announced capital expenditure commitments, the Board has decided the most appropriate course of action is to not make a 2H08 distribution.

“It is the Board’s view that it is in the best interests of securityholders that future distributions per security (”DPS”) be fully covered by operating cashflows. For 2009F, DPS is therefore expected to be in the range of 13 to 18 cents per security based on the current portfolio of assets.

“BBP continues to monitor the impact of gas supply disruption from the Varanus Island incident on the Alinta retail business.

“Whilst there is not absolute clarity regarding the timing of restoration to gas supplies, it is possible this could ultimately take longer than the two months advised by Apache Energy. Taking this into account and given current trading conditions BBP currently anticipates:

“2008F EBITDA to be in the range of $330 million to $340 million which is slightly below Alinta Scheme guidance taking into account pro-rata ownership of Alinta assets.

“2009F EBITDA is likely to be at the lower end of the known analyst forecast range of $439 million to $528 million.

“BBP continues to advance a range of capital management initiatives and continues to progress the asset sale programme and the refinancing of the BBPH3 debt facility of up to $360 million which will further strengthen the capital structure.”

On February 27, BBP said this about the interim payout and the full year payment:

“Babcock & Brown Power (ASX:BBP) today announced 1H2008 EBITDA of $154 million, in line with Alinta Scheme Booklet forecasts.

“A fully tax deferred distribution of 13 cents per security is payable on 17 March 2008. The distribution is fully covered by operating cash flows.

“Paul Simshauser, CEO said “We are pleased with the performance of the BBP portfolio and the excellent progress achieved with integrating the Alinta assets.

“Overall, the portfolio is delivering in line with expectations with strong power generation performance being offset by slightly lower that expected results in the Alinta retail business. BBP re-affirms FY08 DPS guidance of 26.1cps reflecting the benefits of a diversified portfolio.

“BBP is positioned to generate good growth for Securityholders from the portfolio of generation assets in Australia and New Zealand and the Alinta retail business in WA and cashflow available for distribution in 09F is expected to exceed 08F.

Yesterday morning there was Babcock & Brown Infrastructure also making an announcement which confirmed a 7.5c distribution will be paid on September 15, lifting annual payout to 15c.

BBI recovered 5c to 92.5c – still an unsustainable 16% dividend yield — but with almost $10 billion of debt and a market capitalisation that fell below $2 billion last week, you now have to ask if Transurban can make such a dramatic move. Why not BBI, which plans to distribute $356 million this financial year.

Incidentally, BBI has appointed former Queensland Treasurer David Hamill as acting independent chairman, replacing Babcock CEO Phil Green. Babcock & Brown owns 8.24% of BBI.

Babcock and Brown rose 1c to $6.89 at one stage, but then tumbled 18c to $6.70 on the late downgrade of BBP.

Babcock and Brown Infrastructure (BBI) also revealed it had started a sweeping strategy review in addition to the David Hamill appointment.

The actual distribution will be confirmed following a review of BBI’s financial statements for fiscal 2008 expected on August 26, BBI said.

BBI said it had decided to undertake a review of its capital management policies, which will include sales of non-core assets, gearing levels and distribution policy.

A progress report will be provided to investors at the release of BBI’s annual results in late August, the fund said.

BBI’s assets include the Dalrymple Bay Coal Terminal in Queensland, trans-Tasman energy business Powerco, US transmission cable Cross Sound Cable, Western Australian rail infrastructure firm WestNet Rail, UK port asset PD Ports, a suite of European concessional ports, and UK natural gas distributor EIG.

”A capital management review has been initiated by the BBI board in order to ensure we continue to have a strong balance sheet with the capacity to fund attractive organic growth opportunities.”

And Babcock & Brown Wind Partners will provide an estimated distribution for the six month period ending 30 June 2008 of 7.25c per stapled security.

This distribution will be the final distribution for the period ending June 30.

The announcement brings the total distribution for the 12 month period ending June 30 to 14.5c per stapled security, in line with distribution guidance previously provided.

The actual final distribution will be confirmed following the announcement of BBW’s full year financial results on or about August 28.

BBW said its distribution reinvestment plan will be in operation for the 2008 final distribution. That will be a real test of investor faith.

BBW securities rose 7c to $1.72.

And B&B’s listed retirement and aged-care homes fund, revealed its final distribution for its 2008 year would be cut in half to just 2.1c a security, making a total payout of 6.3c as opposed to 8.4c: that’s a 25% cut. Ouch.

 

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And, surprise surprise Centro Properties says it won’t be paying a distribution to ordinary security holders for the June 30 its second half, because it has incurred what it terms significant refinancing and adviser fees.

“CPT Manager Ltd, as responsible entity for the Centro Property Trust and Centro Properties Ltd (Centro), will not be paying a distribution to ordinary securityholders for the six months ended 30 June 2008,” CPT said.

CPT said that under the terms of troubled shopping centre group’s constitution, an amount equivalent to the trust’s taxable income was required to be distributed, but no taxable income was forecast for 2007/08.

“While Centro expects to record an operating distributable profit for the year, it has incurred significant non-operating refinancing and adviser fees,” CPT said.” In addition, Centro’s financial arrangements are such that it is not in a position to fund a distribution.”

Its listed retail trust Centro Retail (CER) said in a statement it expects to make a distribution of about 1.4 cents per stapled security to securityholders for the second half of 2007-08.

Centro MCS Manager, the trust’s responsible entity, said the distribution equated to about $32 million, the estimated taxable income of the trust.

Under the constitution of Centro Retail Trust, it is required to distribute its taxable income.

Centro Properties, which has more than $8.5 billion of syndicated funds under management, hit the wall in December after it announced it was struggling with the debt on its property portfolio spanning Australia, New Zealand and the US.

Its share price has since tumbled 80% and finished at 27 cents yesterday, down a cent. The retail trust added 5 cents to 39.5 cents.

Earlier this month the shopping centres owner was granted more time to repay about $2.8 billion of debt owed to its lenders.

The deadline for the repayment of $2.3 billion owed to its Australian lending group and $US450 million (about $472 million) to US private placement noteholders was extended by almost seven months to December 15, from May 30.

The extension will allow Centro to continue talks on asset sales to raise funds to repay the debt.

 

 ”Yesterday morning there was Babcock & Brown Infrastructure also making an announcement which confirmed a 7.5c distribution will be paid on September 15, lifting annual payout to 15c.

BBI recovered 5c to 92.5c – still an unsustainable 16% dividend yield — but with almost $10 billion of debt and a market capitalisation that fell below $2 billion last week, you now have to ask if Transurban can make such a dramatic move. Why not BBI, which plans to distribute $356 million this financial year.

Incidentally, BBI has appointed former Queensland Treasurer David Hamill as acting independent chairman, replacing Babcock CEO Phil Green. Babcock & Brown owns 8.24% of BBI.

Babcock and Brown rose 1c to $6.89 at one stage, but then tumbled 18c to $6.70 on the late downgrade of BBP.

Babcock and Brown Infrastructure (BBI) also revealed it had started a sweeping strategy review in addition to the David Hamill appointment.

The actual distribution will be confirmed following a review of BBI’s financial statements for fiscal 2008 expected on August 26, BBI said.

BBI said it had decided to undertake a review of its capital management policies, which will include sales of non-core assets, gearing levels and distribution policy.

A progress report will be provided to investors at the release of BBI’s annual results in late August, the fund said.

BBI’s assets include the Dalrymple Bay Coal Terminal in Queensland, trans-Tasman energy business Powerco, US transmission cable Cross Sound Cable, Western Australian rail infrastructure firm WestNet Rail, UK port asset PD Ports, a suite of European concessional ports, and UK natural gas distributor EIG.

”A capital management review has been initiated by the BBI board in order to ensure we continue to have a strong balance sheet with the capacity to fund attractive organic growth opportunities.”

And Babcock & Brown Wind Partners will provide an estimated distribution for the six month period ending 30 June 2008 of 7.25c per stapled security.

This distribution will be the final distribution for the period ending June 30.

The announcement brings the total distribution for the 12 month period ending June 30 to 14.5c per stapled security, in line with distribution guidance previously provided.

The actual final distribution will be confirmed following the announcement of BBW’s full year financial results on or about August 28.

BBW said its distribution reinvestment plan will be in operation for the 2008 final distribution. That will be a real test of investor faith.

BBW securities rose 7c to $1.72.

And B&B’s listed retirement and aged-care homes fund, revealed its final distribution for its 2008 year would be cut in half to just 2.1c a security, making a total payout of 6.3c as opposed to 8.4c: that’s a 25% cut. Ouch.

 

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And, surprise surprise Centro Properties says it won’t be paying a distribution to ordinary security holders for the June 30 its second half, because it has incurred what it terms significant refinancing and adviser fees.

“CPT Manager Ltd, as responsible entity for the Centro Property Trust and Centro Properties Ltd (Centro), will not be paying a distribution to ordinary securityholders for the six months ended 30 June 2008,” CPT said.

CPT said that under the terms of troubled shopping centre group’s constitution, an amount equivalent to the trust’s taxable income was required to be distributed, but no taxable income was forecast for 2007/08.

“While Centro expects to record an operating distributable profit for the year, it has incurred significant non-operating refinancing and adviser fees,” CPT said.” In addition, Centro’s financial arrangements are such that it is not in a position to fund a distribution.”

Its listed retail trust Centro Retail (CER) said in a statement it expects to make a distribution of about 1.4 cents per stapled security to securityholders for the second half of 2007-08.

Centro MCS Manager, the trust’s responsible entity, said the distribution equated to about $32 million, the estimated taxable income of the trust.

Under the constitution of Centro Retail Trust, it is required to distribute its taxable income.

Centro Properties, which has more than $8.5 billion of syndicated funds under management, hit the wall in December after it announced it was struggling with the debt on its property portfolio spanning Australia, New Zealand and the US.

Its share price has since tumbled 80% and finished at 27 cents yesterday, down a cent. The retail trust added 5 cents to 39.5 cents.

Earlier this month the shopping centres owner was granted more time to repay about $2.8 billion of debt owed to its lenders.

The deadline for the repayment of $2.3 billion owed to its Australian lending group and $US450 million (about $472 million) to US private placement noteholders was extended by almost seven months to December 15, from May 30.

The extension will allow Centro to continue talks on asset sales to raise funds to repay the debt.

 

 

The market is down 38. All sectors down despite the US closing up. Industrials down 2% and Telecoms down the most – 2.2% - with Telstra bring the index down 6 points single-handedly. SFE Futures up 28. 

 

 

Dow closed up 34. Up 86 at best. Down 51 at worst.9 out of 10 sectors up– only energy down after rising 17% over the last year. Citigroup announced it would post further losses from subprime exposures this quarter - similar in magnitude to last quarter. Treasury Secretary Paulson said some institutions are finding it challenging to revalue assets and that further capital raisings will “continue to broaden.”  Financials dropped 2% at lowest but finished 0.9% up. BB&T Corp shunned rumours and announced it would lift its dividend this year – encouraged financials. Regional Banking sector fell less than 0.1% after dropping 5% in early trading – good to see some consolidation after last couple of down days. Insurer American International Corp rose the most on the Dow up 4.9% - as they were upgraded to BUY by Citigroup. 17 of 18 semiconductors up – sector up 2.5% as Intel (the world’s largest chip maker) rose 2.56%. Lower oil prices lifted the Transportation Index 3.4% and boosted the Amex Airline Index more than a whopping 10%. Large insurers dragged down by Coventry Health Care’s worst day on the market for 9 years. Jobless claims up– but steady on monthly averages Philadelphia Fed Regional Manufacturing Index down more than expected. Leading Indicators climbed 0.1% to match previous month.

• Both BHP and RIO up in ADR form overnight, 1.5% and 0.34% respectively. BHP up 21c to 4520c. RIO up 68c to 13951c.
• Metals mostly down – Nickel down 3.6%, Zinc down 2.6% and Aluminium down 0.6%. Copper up 1.1%. Zinifex down 19c to 853c.
• Oil price down $4.66 or 3.5% to $131.88 after China announced plans to raise caps on gasoline and diesel fuel prices, a move that could reduce global demand. Woodside down 145c to 6405c.
• Gold up $10.70 to $904.20. Newcrest down 40c to 2748c.
• US Bonds down with the 10 year yield up to 4.20%.

 

Transurban have successfully completed its $659m placement priced at 549c. Macquarie Equities actually upped their recommendation on Transurban yesterday to OUTPERFORM from Neutral. They have a 691c target price, contrary to predictions yesterday that the stock would re-open below $3. TCL being punished for a 60% fall in forecast FY09 yield, despite the positive move by CEO to restructure the capital management policy of the firm. TCL down 12.8% or 70c to 471c in early trading. UBS also maintain their BUY and 679c target price.

 

• Macquarie Infrastructure (MIG) announces 10c distribution for 6 months to June 30 and 20c distribution guidance for next FY. Implies yield of 8.1% compared to Transurban’s (TCL) 4.6%. Coverage of distributions by proportionate earnings are 50-60% - it’s in the spotlight now – could wipe out half of distribution if they follow Transurban. Says cash balances in excess of $900m at May 31. Gearing 46.5%. MIG down 12c to 256c.
• B&B Power (BBP) down 20% in early trading to 57.5c – slashed two stops down from Outperform to UNDERPERFORM by Credit Suisse after BBP cut final dividend and lowered FY09 earnings and dividend guidance.
• Qantas Airways (QAN) April’s revenue seat factor (seat fills across its domestic and international flights) was 1.8% down on-year to a measure of 79%. Domestic seat factor down 1.6% to 80.6%. International down 1.9%, also to 80.6%. QAN up 4c to 316c.
• Incitec Pivot (IPL) announced production issues at Phosphate Hill yesterday – Merrills cut FY08 earnings forecast by 8%. Fell 7.4% on open. IPL down 5% - down 1030c to 18940c.
• Indophil Resources (IRN) has accepted a $1.28 /share, $540m cash offer from the Alsons Group / Hong Kong-based Crosby Capital Partners consortium - a 28% premium to Xstrata’s existing offer of $1 per share. IRN rocketing – up 20% to 138.5c.
• FKP Property Group (FKP) responds to off market $5.00 /share $1.3bn takeover approach by Lend Lease – says the offer substantially undervalues FKP – the offer represented a 32% premium to last trading price. FKP boosted 23% on the bid – up 85c to 465c.
• Mirvac Group (MGR.AU) cuts earnings guidance after carrying value of assets by 3% to 5% ($300-$400m) Earnings guidance now 31.4-34.3c, down from 34.3c. MGR down 6c to 312c.
• Macquarie Airports (MAP) says Qantas’ and Virgin’s capacity cuts only has a 2% affect on seats on an annualized basis – says load factors and flight substitution impact on traffic should be significantly lower. Core traffic passenger growth strong at 7% in May. MAP down 5c to 228c.
• Australian Worldwide (AWE) – NZ Oil and Gas increased estimates at the Tui Oil field to 50.1m barrels, almost doubling the size of initial estimates. AWE down 13c to 396c.
• Cabcharge (CAB) has increased its holding in UK operations, ComCab, from 26.4% to 39.2%. CAB down 5c to 800c.
• Healthscope Limited (HSP) – have entered into a commercial supply agreement for PapType detection test from Genera Biosystems (GBI). HSP up 15c to 429c.

 

Don’t punt on Babcock and Brown coming back.

It’s a huge unwieldy mess, much like Allco, MFS and Centro, but on a much larger, more global scale. Like these other failures, its reputation has been badly undermined by a lack of solid, trustworthy information from the parent and from some of its key listed investment satellites.

The public shareholding in the investment bank is small: the public’s interest is larger in satellites like the Power and Wind funds which are listed, or the Infrastructure business.

There are stories this morning that the company is seeking to do some sort of deal with the banks to limit the review of its business. The meeting with the banks is due to take place tomorrow.

The banking syndicate - led by Calyon of France - includes 25 banks such as ANZ, the Commonwealth Bank, Westpac, NAB, Suncorp Metway, Barclays, BNP Paribas, Citibank, UBS, Societe Generale and Bank of America.

Some of those, such as the CBA and ANZ have exposures to failures like Allco, Centro and MFS, or Opes Prime, so they will be nervy. But they will also know that its in their best interest for the bank to be able to continue trading, if possible. 

The debt review was triggered when the investment group’s market capitalisation fell below a $2.5 billion threshold last week: BNP was worth $1.75 billion at Friday’s close of $5.25. It fell from $11.16 at the start of last week.

Brokers claim the banks could force the bank to sell $2 billion of European wind farm assets on its balance sheet, which were originally intended to be sold into one of the 10 listened investment satellites.That will at least generate profits if able to be done quickly.

B&B’s battle to survive was hit by Friday’s Standard & Poor’s downgrading of its credit rating on the B&B subsidiary that holds the $2.8 billion debt with the banks - Babcock & Brown International.

S&P cut the the ratings on B&B International from BBB Watch Negative A-3 to BB+ Watch Negative B, citing the “continued rapid slide” in the parent’s share price.

There are 10 investment satellites listed in Australia and a group of unlisted funds which the company was expanding to move away from the pressures of public exposure of being listed on the stock exchange.

But the myriad assets it has a stake in, or controls the management of around the world and moreover the estimated $80 billion in debt, makes it a tough situation to sort out quickly.

A hospital in Melbourne, a power cable in San Francisco in the US, trains in Europe, schools in NSW and wind farms in Europe, not to mention the phone company in Ireland, are some of the assets involved, plus billions in debt.

Management and staff own around 43% of the bank and a group of banks own another block of shares taken up as part of a refinancing deal earlier this year.

That makes it hard to impossible to refinance any part of the business through a rights issue or a management buyout. Placements are out of the question, even at a substantial discount because they wouldn’t raise enough money to satisfy the doubters. Not unless the management agrees to have its stake cut significantly.

The sale of a big stake to a ‘white knight’ would also see the management agreeing to take a big ‘haircut’.

There are unsecured notes quoted in the company and they closed at $40 on Friday for a loss of 60% on their face value and issue price of $100. But these notes have to be bid for at full face value in the event of a takeover. There could be around $150 million of these notes as well as unsecured notes on issue in New Zealand.

Short sellers have attacked the stock, but its sharp slide last week was more to do with the lack of solid information; the confusion of assets and investment vehicles here and around the world, and the surprise covenant in its banking agreement that said the banks could look at the company’s finances if market cap fell below $2.5 billion, which it did last week. 

It was the market’s concerns about the company’s business model that set it up to be attacked, not the short sellers searching for another target.

Much of the pressure can be traced to its troubled power satellite, Babcock and Brown Power which has around $2.7-$3.4 billion of debt on around $516 million of market value

There would not have been any of last week’s problems, especially Thursday and Friday, if there was market confidence in the company and its business model.

There obviously isn’t the same level of confidence in BNB that there still is in Macquarie Bank.

So BNB shares fell to a record low on Friday. The shares fell 32% and the market cap more than halved last week. The shares ended at $5.25, down $5.68, or almost 52%.

UBS cut its rating on BNB, as did Citigroup and Merrill Lynch.

UBS cited a “crisis of confidence” among investors in its downgrade.

Babcock and Brown Power is Australia’s biggest publicly traded power producer, but it’s been a shrinking one.

The securities fell 45.8% to 71c (down 60c). They touched a low of 54c during trading. Credit Suisse reckons it might have to sell some of its best assets quickly to generate enough liquidity to withstand the impact of the WA gas crisis.

BBP is the major gas distributor in WA and the Varanus Island explosion and subsequent drop in supply (of around one third) forced BBP to suspend trading in its shares to prepare a statement on the impact of the crisis on its finances. 

It says the impact will be immaterial, but it seems the market disagrees as the company has to find hundreds of millions of dollars more in cash and new loans, on top of the $2.7 billion new loan facility which seems to be still intact.

BBP hopes to complete the $2.7 billion debt refinancing this week, but needs to raise an estimated $635 million in debt to cover a loan and capital expenditure through to midway next year.

The manager and parent BNB says it will stand behind BBP on a short term basis, and that also spooks the market, which wonders where the investment bank will get that sort of money in the current market.

BNB may generate a couple of hundred million dollars of profits from the sale of European wind assets, but those are held in separate funds. It now seems that an associated hedge fund has loans with BNB that might cause worries.

On the ABC program, Inside Business yesterday, host Alan Kohler talked to a representative of corporate governance consultants, Riskmetrics.

This exchange highlights the problems in the Babcock and Brown empire:

ALAN KOHLER: Well do you think that the Babcock & Brown group will be able to pull out of this dive that it’s in?

MARTIN LAWRENCE: The dive has been very sharp and very quick and to a certain extent, I mean they announced a Babcock & Brown consortium had acquired some assets in the UK, some rail assets. There’s fees are going to come out of that. The problem is though that it’s a business that’s built on market confidence. On people giving them their money, on people trusting them to do deals. I think if they don’t come out of it very quickly, it will be a very long hard slog back.

ALAN KOHLER: Well in fact, do you think they’ve lost credibility now?

MARTIN LAWRENCE: Well, the share price is fallen so quickly and the satellite funds have kind of gone down as well. I’m not sure if it’s a question of credibility or if it’s a question of just confidence. And there doesn’t seem to be a lot of confidence towards the model at the moment.

ALAN KOHLER: Do you have a sense of how much of this is due to the activity of hedge funds?

MARTIN LAWRENCE: I think there’s a lot of people who’d like to believe it was all just nasty hedge funds that are selling the stock short and manipulating the price. I don’t think that that’s what we’re seeing here. I mean, maybe we saw it earlier in the market but most of the companies that have been sold short there have been good fundamental reasons to sell short. Babcock & Brown operates in the same kind of sphere, the financial sphere, that’s been slaughtered. 

The shares in these companies around the world have been slaughtered. So there were compelling reasons if you were an investor to have some doubts. And as I said before, it’s a model that has been built on easy access to capital. Capital’s not easy to get at the moment and so it’s an entirely rational decision as an investor to say, “I want out”. So I think blaming hedge funds might be convenient but I don’t think it’s necessarily true or fair.

What BNB Told The Market

This is Babcock and Brown’s statement to the market yesterday: the fate of the entire group, the investment bank and the 10 listed funds depends upon the optimism in this statement being full realised.

 

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International investment and specialised fund and asset management group Babcock & Brown Limited (ASX: BNB) today reconfirms, following certain incorrect and misleading commentary in relation to its debt facility, that the market capitalisation clause in its corporate debt facility does not constitute a default or breach of covenant.

Babcock & Brown’s $2.8 billion three year evergreen facility was reviewed, extended to 2011 and signed off by its banking syndicate in April 2008.

The market capitalisation clause provides for the facility banks to have the right to call for a review of their position under the facility rather than any specified action. The facility banks have not yet made a decision as to whether such a review action is appropriate.

Babcock & Brown formally meet with its banks and will update the market when it has further information. A decision may take some time in line with normal banking syndicate processes.

If the banks call for a review it would entail a four month consultation period with lenders during which time Babcock & Brown would continue to operate as normal with no impact on access to its corporate debt facility.

Separately, the decision by Standard & Poor’s (S&P) last Friday afternoon to downgrade Babcock & Brown to BB+, consistent with its move to downgrade other financial related stocks around the world, was not based on any information provided to S&P by Babcock & Brown or the facility lenders.

The change in S&P rating does not constitute a review event or event of default, or otherwise entitle any lender to require a prepayment of any financing facility within the Babcock & Brown Group.

Babcock & Brown intends to accelerate the current strategic review of its listed funds through the appointment of external advisors.

Babcock & Brown will work with the funds and the appointed advisors to review the current arrangements to remove the gap between the underlying asset values and the current trading prices and to respond to market concerns regarding the listed fund structure.

The results of the review being carried out will be presented to the Boards of the funds for consideration. Babcock & Brown will continue to update the market on the details and progress of this strategic review as it relates to each fund.

As a first step in this process, Babcock & Brown, in its capacity as manager, intends to immediately recommend the appointment of independent chairmen to the Boards of the four Australian listed funds that do not already have independent chairmen, namely Babcock & Brown Infrastructure, Babcock & Brown Power, Babcock & Brown Wind Partners and Babcock & Brown Residential Land Partners.

Phil Green, Chief Executive of Babcock & Brown said, “We will move as quickly as possible to restore investor confidence in a decisive yet orderly manner.”

Mr Green added “Babcock & Brown will continue the asset recycling and freeing up of capital that has previously been outlined to the market; de-leveraging our balance sheet and, further, will move to narrow our investment focus to core activities including development and co-investment.”

Babcock & Brown has a significant pipeline of assets in greenfield development including wind (16,000 MW), solar (1,400 MW) and gas fired power generation (3,360 MW) assets, and power transmission assets; and PPP projects in countries around the world including selected countries in Europe, North America and Australia.

Babcock & Brown’s development and acquisition pipeline is one of the key attractions for investors in both our wholesale and listed funds.

Babcock & Brown remains committed to investment in this pipeline to deliver a source of competitively priced, attractive assets for its managed funds platform.

During this week, Babcock & Brown will receive first round indicative offers for the unique portfolios of European wind energy assets.

Based on the level of interest received and current indications, these sales are expected to be finalised in the third quarter and reach financial close either simultaneously or early in the fourth quarter of 2008.

This process is being conducted in conjunction with Babcock & Brown Wind Partners.

WASHINGTON - Two of the world’s most closely watched energy forecasters on Tuesday slashed predictions for output from oil fields outside the OPEC cartel in 2008 — more bad news for a global economy struggling with record high oil prices and tight supply.

The dimming outlook for world production will keep the market on edge even as high prices hit consumers and cut into the pace of global demand growth.

The International Energy Agency, adviser to 27 industrial economies, cut its expectations for supply growth from countries outside OPEC to 460,000 barrels per day above 2007 levels, down from 680,000 bpd a month ago.

The U.S Energy Information Administration, the statistical arm of the Energy Department, cut its forecast for non-OPEC output growth nearly in half to 310,000 bpd from 600,000 bpd.

Both groups have consistently over-shot on non-OPEC supply growth in recent years, as soaring field costs and geopolitical constraints have wreaked havoc on official timelines.

Partly due to the dearth of supplies outside the Organization of Petroleum Exporting Countries, the EIA raised its projections for 2008 oil prices by nearly 12 percent. Benchmark West Texas Intermediate oil prices will average $122.15 a barrel, up from its previous forecast of $109.53 a barrel, the EIA predicted.

Oil prices hit a record near $140 a barrel last week, a seven-fold increase since 2002 that has been driven by surging demand from China and other developing countries.

The EIA said it was still accounting for a planned non-OPEC supply increase of 820,000 bpd later this year as big fields in Brazil and Azerbaijan come online. But, given recent delays, the EIA hedged its bets on the probability of such supplies materializing as planned.

BACK TO THE DRAWING BOARD

“Given recent history, EIA believes that the pace and timing of non-OPEC supply growth will continue to be subject to possible delays in key projects and accelerating production declines in some older fields,” the agency said.

The EIA has sifted through new data that paints a less rosy picture for supplies from three key producers — Russia, Mexico and Brazil — said Matt Cline, an economist at the agency.

In Russia, the world’s No. 2 oil exporter behind Saudi Arabia, a venture with LUKOIL and U.S.-based ConocoPhillips to produce 160,000 bpd in Russia’s north has been repeatedly delayed.

In Mexico, production from the huge Cantarell offshore field plummeted by more than 30 percent in the first four months of 2008, versus a year ago, Cline said.

“Like everyone else, we had been expecting Cantarell to decline this year,” Cline said. “But no one had been expecting it to decline by that much.”

In Brazil, the EIA has dramatically increased its baseline for decline rates in some larger, more mature fields, especially in its offshore areas.

Cline said, “based on some new data and some new analysis, we reevaluated what we saw as the underlying decline rate and we increased it” to about 13 percent for some fields, versus about 10 percent previously.

EIA head Guy Caruso said the downward revisions would put more pressure on OPEC suppliers like Saudi Arabia to fill the gap, and will lead to tighter global spare capacity.

“Tight spare capacity means upward pressure on oil prices,” Caruso told Reuters.

IT’S TRICKY

The slower growth in supply from non-OPEC countries will keep supplies tight, despite weakening growth in demand, as high prices hit consumers, the EIA said.

And analysts must balance predictions for supply decreases with similar predictions for falling oil demand, both in the United States and globally.

“It’s a tricky situation, because supply is falling as fast as demand is,” said Francisco Blanch of Merrill Lynch.

The IEA said global oil demand will rise by 800,000 bpd this year, 230,000 bpd less than its previous forecast, in part because developing Asian economies are moving to roll back fuel subsidies that sheltered consumers.

The EIA, meanwhile, cut its forecasts for U.S. demand by 100,000 bpd and global oil demand by 210,000 bpd in 2008.

节目名称  太王四神记
Title        The Legend

演员 / 主持人     裴勇俊           ,  李智雅     , 文素利
Cast / Host       Bae Yong Jun ,  Lee Ji Ah ,  Moon So Ri

集数                                16
No. of Episodes

剧情     

韩剧「太王四神记」叙述的是太王高句丽，与朱雀、玄武、青龙、白虎诸四神，共同开疆辟土的神话故事，间中更牵引出高句丽太王，和帮助他成就丰功伟业的两位红颜知己－琦荷和秀芝妮－之间的一段缠绵悱恻, 赚人热泪的感人爱情。

Synopsis