There will be a wary group of investors sticking their heads up today and wondering just where the damage in the financial engineering (property trust and associated entities) sector will end.
Friday’s rough trading here will be added to today by worries about oil and the 1.83% fall on Wall Street Friday night as concerns about the health of financial stocks spreads.
Weaker commodity prices were partly to blame for our 1% plus fall Friday but it was the widespread weakness for financial stocks of all sizes that hit sentiment.
The futures market is pointing to a near 90 point fall at the opening from Friday’s weaker level after Wall Street’s 220 point sag for the Dow.
For many investors in the financial sector, Friday was yet another miserable day that confirmed the glory days of the past decade for banks, property trusts, investment banks and all those in between, is well and truly over.
Transurban Group, Babcock & Brown Power (BBP) and APN/UKA European Retail Property Group were belted Friday after cutting dividends and underlining the rising level of doubt in the debt-driven business models.
Transurban was down a record 15% at Friday’s close of trading; Babcock and Brown Power, our biggest publicly traded electricity producer, shed 14%, while APN/UKA, an owner of European retail malls, dropped a huge 25%.
Transurban triggered much of the pain when it recast its business model Thursday by cutting its 2009 distribution guidance, raising nearly $1 billion in new capital by various means and promising to match payouts to operating performance and cash flow. BBP said it was dropping its final payout for the June half and suggested there was doubt about the 2009 payment and APN/UKA cut its payout.
Babcock & Brown (BNB) and Macquarie Group (MQG) which manage a host of listed investment trusts, were sold off Friday. BNB fell 4.1% to $6.42 and Macquarie shed $2.15 to $46.60.
BNB is down 76% over the past year and MQG is off 39%.
Transurban (TCL) fell to its lowest level since June 2004 after CEO Chris Lynch said dividends will be cut next financial year. That was after TCL raised $659 million selling 10% of the capital to the Canada Pension Plan Investment Board. TCL shares closed down 79c at $4.62.
BBP lost 10c to 62c, 8c above its all time low of 54c. It is down 77% this year, as investors sold out because of growing fears about its huge debts. It won’t pay a second-half dividend and will focus on reducing debt. It also cut its full-year profit forecast and suggested the 2009 distribution was a bit wobbly.
APN/UKA, is a Melbourne-based company that owns European shopping centers. It has cut its payout and lost ground after Merrill Lynch and JP Morgan analysts slashed their ratings.
Macquarie Infrastructure Group, Australia’s biggest owner of toll roads went against the trend. It said it would stick with its strategy of paying its dividend by a combination of earnings and borrowings, going directly against the new route signalled by Transurban.
MIG’s securities fell 6.7% after the group said that only about half of its 2008 dividend would be covered by earnings.
The company said it expects its dividend of 20c a share for the 12 months to June 30 will be covered by 50%-60% of earnings after corporate expenses.
Meanwhile investors were left a bit non-plussed by Lend Lease on Friday.
It revealed it had tried twice in the past few weeks to get a friendly takeover deal up with property developer FKP Property Group, and also confirmed it was having trouble raising funds for its share of the work on the London Olympic games project.
FKP said in a statement to the ASX on Friday that it had rejected a takeover approach worth around $1.3 billion from Lend Lease Corp. FKP said the bid undervalued it.
FKP, which claims to be market leader in developing retirement communities, said Lend Lease had offered the equivalent of $5.00 a share in cash and shares, or a 32% premium to FKP’s last traded price of $3.80.
FKP shares jumped $1.20 or nearly 32% to $5 after the statement.
”The LLC proposal is opportunistic and does not reflect FKP’s underlying value and future prospects,” Chairman Ben Macdonald said in a statement to the ASX.
Lend Lease shares fell 3% to $9.79 after hitting a new 52 week low of $9.76.
"Lend Lease believes the combination of the two companies would have provided an exciting opportunity to create a leading ASX listed, globally diversified property group with significant benefits for shareholders of Lend Lease and FKP," Lend Lease said in a statement to the ASX on Friday.
"If combined, the group would become Australia’s leading integrated developer, owner and operator of retirement villages and a leading developer of master planned urban communities.
"With Lend Lease’s strong balance sheet and low gearing, the combined group would have enhanced capacity to fund FKP’s development pipeline and to fund future growth. Lend Lease remains open to continuing discussions with FKP.
"Given Lend Lease’s strong financial position, Lend Lease will continue to evaluate strategic opportunities which it considers will create value for its shareholders."
That was after the news of the FKP offer broke and confirmation that it was having trouble funding its share of the costs of the London Olympics project for 2012.
Lend Lease said it was experiencing funding delays over plans to build the 2012 games village, a $US14 billion project that LLC will develop with a group of other companies.
The company said that market conditions have prohibited the company from securing project debt.
"Any debt funding will
