I used to be a shareholder and really believed in this. Looked at the PDS the experts traffic projections etc.
It all boils down to auditors having to look very closely at the professional indemnity insurance policy if they do or in this case omit to do something that patently they should have.
If you are management on a new project you measure it against your investment model. Here I would suggest that management if they were being totally frank should by now have pointed out to investors how far the numbers are off the base case model. They are totally silent as too how these numbers translate to the expected numbers. The base case numbers did not change because of opening date and if you think you benefit by opening early remember you paid a bonus for that privilege and only if the traffic is starting a ramp up towards the base case figure should the early opening benefit you materially.
Why has management not commented on how the actual numbers compare with the experts model. The experts model would have taken into account the ramp-up. The only response is to extend the discounted period. That normally suggests they need to keep numbers up and try to grow them because they are below base case.
I dont live there but a few mates have all said the same thing - "essentially it isnt worth the toll" "it has exposed other bottlenecks so it hasn't really solved that much" "The alternatives cost you nothing and are only a few minutes longer" "It may change when the airport link is in"
The real crunch comes in 3 months time when the auditors - based upon 4 months data have to decide whether this asset is fairly valued. They will have to measure it against base case and draw conclusions. If RCY is lucky they say its too early to measure but if the numbers really dont stack up they may have to question the directors who then will all have to look at the risks of the model and being wrong.
The one element that may save them is if the discount drives the ramp up faster than the other examples the base case used. Under these circumstances if you assumed the ramp up was going to outperform the model for the 18 months you may get back on track and hence probably the extension of the discount. If I was one of the directors I would have extended the discount until October so that I could hopefully get well above the expected ramp-up line.
However what if the discount doesnt drive the ramp-up then you are under the pump on two grounds lower ramp up and lower base income.
It is not inconceivable that under the audit conditions they could have to look closely at solvency issues based upon valuation. I decided to sell and take my losses on the nose - Even a period of administration doesnt excite me.
All I am suggesting is that you go and do the research that you should not have to do. The guys who sold this project should be telling you how deep the hole is compared with the base case model. If this was a private consortium you would know how deep the hole is on a weekly basis and a whole range of outcomes possible. All you get is the traffic figures - Not enough IMO. Imagine if they had been higher than expected - the headlines would be Tunnel exceeds ramp up flow. Tunnel a success - early traffic flow ahead of expectations. Have you seen any like this?
RCY Price at posting:
5.0¢ Sentiment: Sell Disclosure: Not Held
