explanations, page-12

what a dog.

I added this to my defensive income portfolio Friday at $1.25 but exited this morning cause it smells like another value trap.

I ran my knuckles over it on the weekend and cannot escape the conclusion they are snookered. Summary being;

They are the passive partner (bitch) in the two electricity businesses being 49% owners and thus at the mercy of CKI majority owner. CKI also own half the fee gouging management company that controls their future so nice little conflict there.

CKI says that they want to recycle earnings in the underlying business into capex over next 5 years so no income for SKI. Furthermore CKI want to reduce gearing in underlying business so maybe even a call on further capital?

SKI has limited choices now with debt to service/rollover and more capital spend pending. They can sell the business but to who? Nobody else would want to end up the bitch craypotted in the situation SKI finds themselves in except at extreme NTA discount. CKI would no doubt be happy to buy back the 49% at a "good price" but given SKI have very limited options why not depress the share price and soften up the shareholders first?

SKI decide that no-one will buy an asset with the mamanement rights hanging over their head that gives control and good money to CKI/Deutch each year. So they undertake to buy back management rights (change business structure) similar to recent Maquarie satelite management internalisations. This is not cheap and requires a significant capital raising (circa $50M-$100M ??). After this cash spash back to CKI then CKI will turn around and make a takeover for diltued and weakened SKI?

Chance of someone else buying into the 49% craypot even if management rights are internalised are low. Chance of selling 49% of either underlying business to third party is also low. CKI would have a pre-emptive right so who in the world will go through the charade of bidding on 49% that will end up with CKI anyway? Not a very plausible way to get fair value of the underlying asset.

Capital raising to fund capex and replace lost distributions from underlying business also looks an ugly prospect. No distributions coming for 5 years, capital raising to pay down debt that will breach covenants without distributions from underlying businesses or an extra large raising so that SKI can pay back the funds raised as distributions in a cycnical capital return merry-go-round? Capital raising will have to be significant and heavily discounted to NTA and current price to attract bidders. Look around and other asset rich utilities that don't pay high divi's and they all trade at heavy discount to NTA because nobody wants these type of stocks. High divi stocks attract retirees and cash management funds but growth investors will only pick up illiquid utilities not paying distributions at highly discounted prices.

Can anybody give me a plan that doesn't involve a heavily dilutive raising in 3 months time or a very cheap CKI takeover/asset buy-back while they have SKI on the ropes? Too much downside and uncertainty to punt on a reasonable valued or timed takeover IMHO.

goodluck