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but if the market makers have factored in the current conditions, then the open price may be lower or even below the IPO price, so where got chance to short?
with the current conditions, this counter can be shorted tomor liao....
Agree with maxsyn. To add caution to the shorters, the current yield for the REITs in the market are also relatively low (MIIF ~ 7+%) hence, the downside will be most probably limited. In addition, about 98% is issued to instituitions.
caution. shorting when market is bullish is against the trend, very risky, unless can spot intraday high and low
Look like this counter is good for shorting on wednesday...
Let's short this counter on debut to below 1; target NAV 0.85
Babcock & Brown IPO: not quite a no-brainer
By OH BOON PING, Published December 18, 2006
SOON-to-be-listed Babcock & Brown Structured Finance Fund is projecting a 9 per cent yield next year based on its offer price - surely one of the most attractive initial public offers this year. But is this a no-brainer investment that investors should rush into?
A look at the asset classes that the fund invests in quickly reveals that it warrants a serious look. However, attention should be paid not just to its promising prospects but also the associated risks. Babcock & Brown said that its initial portfolio, acquired for $397.7 million, consists of near-equal allocation across assets like biofuels financing, loan portfolio and securitisation such as collateralised debt obligations (CDOs), and operating leases in aircraft and rail. The IPO consists of 6.47 million public offer shares and 316.99 million placement shares at $1.06 each, and Babcock & Brown said that investors can expect to receive total payout of 10.06 cents per share by the end of next year. This comprises a dividend of 9.54 cents for 2007 and 0.52 of a cent for the period from the listing date to Dec 31 this year.
To be fair, the segment which includes renewable energy financing is a potential money spinner, given the boom in the energy sector. And Babcock & Brown's projected payout also serves as an assurance somewhat. But it is also clear that the fund has no comparable on the local bourse that can be used as a performance benchmark, and complex products like CDOs are very new to most retail investors here. This means that these investors may not fully understand the risks of buying into the fund.
Take the example of CDO - a pool of underlying debt obligations, which has its risk redistributed across investors via tranches. Yes, most of us know that there is default risk that comes from the underlying pool. But what complicates the picture in a CDO is that the default of one party may result, to different degrees, in the default of other parties in the portfolio. As such, the performance of the individual tranches depends largely on the degree of correlation of the defaults that may occur in the underlying portfolio.
The instrument also faces legal risk as legal and documentary issues are factors in ensuring the efficiency of risk transfer and of clearly defining the role of the different parties involved in a CDO structure. Third party risk is also present in a CDO, as the inability of a third party to meet its obligations could jeopardise the viability of a transaction. In the case of cash-flow CDOs, this takes the form of counterparty risk vis-a-vis the counterparties of interest rate or foreign exchange swaps, or providers of external credit enhancers.
So in assessing the risk-return trade-offs for this one asset class alone, investors already need to carry out a substantial amount of research, which may not be easily available. As such, a 9 per cent yield may come with risks that retail investors are not able to measure easily.
Business outlook-wise, Babcock & Brown is optimistic about prospects in aircraft operating leasing, citing factors such as the growing proportion of global commercial fleet subject to leases, from 26.3 per cent in 1986 to 50.7 per cent in June this year. To be sure, aircraft values and lease rates have shown continued improvement since the trough of 2002-2003, and lease rates on in-production long-range wide bodies and certain narrow-body aircraft, posted double-digit growth over the past year.
However, one should also note that high fuel-related costs, geopolitical risks and health-related threats such as Sars or avian flu will continue to affect the outlook for the sector. Plus, most of its assets are parked in North America, Europe and Australia, and local investors may not be able to make informed judgments about the market conditions in those countries. This is especially critical as any downturn in the US will directly affect the returns and default risks of the portfolio. A look at its portfolio also reveals that its assets are often inaccessible to most retail investors, which may not be a bad thing since investors now have more investment options. But as these investments are relatively illiquid, this also heightens the liquidity risk when it comes to disposal of assets. Investors would do well to look further into these issues before calling their brokers.
But now the sentiment is different.
Investors fear to lose out and will chasing it likely nobody business as now the market is bullish.
The PE is around 106/9.54 =11.11
This fund can be compared to MIIF. It traded @1.14 high above IPO price of 1 during first day then it is always below 1. Always trading below NAV of 0.99, it dividend also quite high @ around 7-8%.
BBSFF IPO of 1.06 is abt 24.7% premium above NAV
So I will opt to but after IPO...
attractive 9% yield!
Babcock & Brown Structured Finance Fund Ltd
Price: S$1.06
NAV per share (post-IPO): S$0.85
Forecast Yield PE: 9.0% (FY07F)
Market Cap (post-IPO): S$381.0m
Open: 13 Dec 2006
Close: 18 Dec 2006, 12.00noon
Trading: 20 Dec 2006 (on "ready" basis)
Lead Manager: UBS Investment Bank
Babcock & Brown Structured Finance Fund is a mutual fund company incorporated in Bermuda. Its key investment objective is to invest in a portfolio of assets to achieve the desired economic exposures with an attractive yield and a competitive rate of return by paying regular dividends and achieving capital growth. It intends to invest in three target sectors, namely, Operating Lease Assets, Loan Portfolio and Securitisation Assets, as well as Alternative Assets to create a portfolio with predictable cash flows, potential for long-term capital growth, and diversity across each target sector as well as geographies and currencies.
A dividend of 9.54 Singapore cents per share is expected for 2007, providing a yield of 9.0%. This excludes the additional 0.52 Singapore cents per share relating to the period from Listing to 31 Dec 06.