MXUPA - Multiplex SITES, page-6

No reason to panic. I think it is a matter of large holders sorting out their income stock portfolios. Bank stocks and Telstra are now paying similar gross dividends, new hybrids are coming onto the market with higher than normal yields. The market is telling us that at the moment they want 8.5-9% to hold MXUPA. They want 10.5% to hold SVWPA which I think is an even better investment.

The price of these investments will go up and down based on market sentiment, The hybrid price hasn’t crashed - they have come back 10-20%, much like the banks and Telstra did a month back. If there was a real concern about viability in the current market, the price would be down below $50. The price dropped because there was a shortage of buyers willing to buy at the higher price - now that the price has dropped, buyers are stepping forward and the price is starting to go back up. It will stabilise at the level that the market sees the interest rate as attractive.

Is Brookfield Multiplex safe? There are only a couple of companies in Australia who can take on major projects and Brookfield is one of them - and there has always and will always be a constant stream of major construction projects.

Yes, they carry a lot of debt, but they are in the construction/property/infrastructure business and these businesses run on debt. Debt facilities are constantly rolled over and net debt simply rises and falls with the tide of projects starting and finishing. It doesn’t mean that they can’t have a few stumbles, but the international group is massive and the Australian arm is a significant portion so it is very unlikely that the parent company would ever let Multiplex get into financial trouble.

I believe that B-M see these hybrids as cheap and easy debt - no covenants, no roll-overs, they don’t even have to pay interest if they decide not to. I can only see these hybrids being matured via a new hybrid with similar easy conditions, and not until the credit markets are willing to pay down to a 2% margin, like they were before the GFC. The conditions will be right at some stage, but not in the next decade.

Will they stop paying interest? One of Brookfield’s major major stakeholders is the credit market - they carry a lot of debt which does have covenants - and one of these covenants is that all interest to be paid when due. It doesn’t matter whether the hybrid interest is legally deemed to fall into that category, would B-M risk a loss of reputation in the credit markets by failing to pay interest on a tiny portion of their overall debt? This would have serious repercussions for them and their parent. The fact that B-M have not missed an interest payment on any debt of any type is a major factor in renegotiating debt facilities, and they are constantly in the market doing this.

All my own opinion, do your research.