Archives August 2018

Central Petroleum chief Richard Cottee defies sceptics with Incitec Pivot gas deal

Central Petroleum chief executive Richard Cottee has defied sceptics of the idea of Northern Territory gas supplying eastern manufacturers, signing up Incitec Pivot in a conditional deal that could be worth over $1 billion.
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The initial accord struck by Mr Cottee with his long-time friend, Incitec Pivot chief executive James Fazzino, envisages deliveries of 15 petajoules a year of gas for 10 years, potentially starting in 2018.

Gas would be delivered from Central’s Palm Valley and Dingo fields near Alice Springs and shipped through a mooted $1.3 billion pipeline linking the NT with the national gas grid.

The viability of the NT gas pipeline has been questioned by some observers including the Grattan Institute, and would require several more customers and supply sources to go ahead.

But Mr Cottee said the agreement with Incitec Pivot showed the concept was realistic.

He said Central could prove the sceptics wrong, just as he did in the embryonic days of Queensland’s coal seam gas industry when heading up Queensland Gas Co more than 10 years ago.

“We are clearly stating that you can produce Northern Territory gas at a price acceptable to manufacturers on the eastern seaboard,” Mr Cottee said.

“We have put our foot on the sticky paper. I don’t care what the commentators say: they don’t have to put their foot on any sticky paper. I have and I did it at QGC against all the commentators.”

Gas would be supplied at a price per gigajoule below the “double figures” that Industry Minister Ian Macfarlane suggested that NT supplies would cost for NSW users, Mr Cottee said, adding that price would make it unaffordable.

Assuming a price of $8 a gigajoule, the deal, if firmed up, would be worth $1.2 billion over its 10-year life.

Mr Fazzino said the tariff for the gas would “take us back to the price before the recent mark-up” in tariffs due to the LNG export projects being developed in Queensland.

“There is a lot of water to go under the bridge but if anyone can do it it’s Richard,” Mr Fazzino said.

The gas would be supplied through an expansion of Central’s fields, Dingo and Palm Valley, which have been mothballed due to a lack of customers in the NT.

Under the non-binding heads of agreement, Incitec Pivot would “provide assistance in sourcing capital” for drilling and reserve certification at the fields.

Mr Cottee said the project involved an expansion of existing conventional gas fields, with no need for major new infrastructure, making the gas cheaper than many were anticipating. The gas pricing assumes a tariff that is slightly more than potential NT pipeline developer APA Group has suggested transportation would cost.

The transportation tariff to get gas from the Alice Springs fields to the fertiliser manufacturer would be about 50 per cent more than the tariff from the Moomba gas plant in South Australia to Sydney, Mr Cottee said.

“People are forgetting this can be brownfield, this can be low-cost curve,” Mr Cottee said. “The cost structure for us is really quite low.”

He said development of Palm Valley and Dingo might cost $10 million to $20 million.

Like other manufacturers relying on gas, Incitec Pivot has been hit hard by price hikes for new contracts, partly due to the new Queensland LNG projects and slower than expected development of NSW CSG.

Mr Fazzino called for more gas and suppliers to broaden and deepen the supply market, saying that having just four gas suppliers in the eastern states was not a functioning market.

He said that in Australia an industrial buyer might get just one offer of supply, whereas in the US a short-list of 100 suppliers can be whittled down competitively.

“Not only do we need more gas we need more gas suppliers,” Mr Fazzino said, adding that Incitec Pivot was looking to develop a portfolio of five or six gas deals to diversify supply and risk.

The NT government earlier this month briefed industry on the proposed NT pipeline link, which APA has voiced interest in building, while others such as Duet Group and Jemena are also thought to be considering.

A final investment decision on the pipeline may occur in about 12 months’ time, Mr Cottee said.

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Yancoal faces shareholder revolt

Furious minority shareholders in Chinese-controlled Yancoal claim they were approached by management over a buyout just weeks before the Australian-listed coalminer announced a dilutive $US2.3 billion debt-for-equity swap on Monday.
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After unveiling the refinancing deal, Yancoal boss Reinhold Schmidt denied it was a new attempt at privatisation by controlling shareholder Yanzhou Coal, and said privatisation was not on the table.

But a senior investor in Yancoal has told The Australian Financial Review that Yancoal’s management had made half a dozen informal offers to buy out its holding at about 30 cents in the past six months – most recently in mid-October.

Yancoal shares opened at $1.53 on their ASX debut in mid-2012, and are currently languishing at about 16 cents.

The shareholder claims the debt-for-equity swap, using a subordinated capital notes offer, is a stealthy privatisation grab by Chinese coal giant Yanzhou Coal, after informal takeover offers were rejected.

Yancoal’s head of investor relations James Rickards said Yancoal had been in talks about “a potential liquidity event for minority shareholders”, as part of an independent board committee review.

“Preliminary informal conceptual soundings were held with a number of shareholders to test the feasibility of this option, however, no offer was ever tabled as this option was not feasible,” he said.

Yancoal is one of the ASX’s most illiquid stocks, with Yanzhou’s monstrous holding accounting for 78 per cent, and Asian commodities trader Noble Group with 13.2 per cent. The remaining 8.8 per cent is split between four minority shareholders.

In a recapitalisation revealed on Monday, Yanzhou will take up $US1.8 billion of a $US2.3 billion ­subordinated capital notes offer in Yancoal to repay a $US1.8 billion loan to itself. The notes will be treated as equity, convertible at 10c a share.

Yancoal will attempt to tap the rest of its register for the $US500 million balance. Yanzhou will also extend a fresh $US1.4 billion loan to the troubled miner.

Mr Rickards said the deal was “an offer in the interests of strengthening the balance sheet, not privatising Yancoal – to assert otherwise is incorrect and misinformed”.

The minority shareholder says the debt-for-equity swap is a “massive expropriation” in which  Yancoal would refinance itself unnecessarily at a higher rate, adding about $50 million a year to interest repayments – which in the main would go to Yanzhou Coal.

There was no justification for the timing of the refinancing, when no significant debt is due for two and a half years, he said.

But Yancoal’s Mr Rickards said: “The status quo is not sustainable in light of our gearing levels and covenant position.

“We are under growing pressure from lenders to proactively take steps to reduce our debt, address our covenant position and establish a more sustainable capital structure.

“Delaying recapitalisation of the company until the debt is due and payable or a default has occurred would clearly not be in the interests of the company.”

The aggrieved shareholder is taking legal advice on its options, and will make a complaint to the company, while also considering an application to the Takeovers Panel. It will also try to interrogate each of the independent directors who backed the debt-for equity-swap, saying it is at a loss as to how they could have recommended the deal as being in the best interest of all shareholders.

But Mr Rickards said the independent board committee had “acted with complete propriety throughout the process and it is inappropriate and wrong to suggest otherwise”. “The IBC has conducted a rigorous and independent process, which has involved it using separate and independent legal and financial advisers from those used by the company.”

It is understood the minority shareholders outside Noble had been approached about a buyout in the lead-up to the debt-for equity swap being announced.   It is understood the buyout offers involved Noble remaining a minority holder in the private company, alongside Yanzhou.

The offers came after Yanzhou called off a privatisation bid for Yancoal in March this year, after being stymied by Noble Group over price. However, Noble was blindsided by the debt-for-equity swap and is believed to be furious about not being sounded out over it.

The head of m&a at a major investment institution – independent of the situation – is considering representing the minority holders in taking up a fight against the deal.

Minority shareholders have not yet seen a term sheet on the offer, but have not ruled out buying into the notes offer if all else fails.

The move could also be seen as throwing out a challenge to other shareholders to support the business.

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Big banks are far from bulletproof

Beating the marketA soft economy has done little to interrupt the stream of good news for investors in those sharemarket giants, the big four banks.
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The latest round of corporate results confirmed, once again, that the Commonwealth Bank, Westpac, NAB and ANZ are profit-generating machines.

Between them, the big four racked up $28.6 billion in earnings in the latest financial year, 5.7 per cent more than last year. Dividends were up across the board – although there were no one-off special dividends that some shareholders pocketed last year.

Bank bosses also used lots of phrases like “quietly positive,” a sign they’re confident things will more or less continue to hum along nicely.

Barring a sharp deterioration in the economy, it seems a fair bet that earnings and dividends will indeed climb higher over the next year or so. How do the banks do it?

A key reason for their strong run is that they make a huge chunk of their money from writing home loans. Very low interest rates and a recovering housing market make this a profitable industry to be in right now, because credit growth is accelerating and few borrowers are defaulting on their loans.

Given the big banks’ dominance in this market, it’s hard to see these business conditions changing radically anytime soon.

But that doesn’t mean there aren’t a few risks facing big bank investors. The share prices are already high and banks have performed better than the broader market for the last three years. There are also a few worries that are weighing on investors’ confidence.

The issue that’s recently had the market in a lather is the prospect of tougher regulation being recommended by the financial system inquiry.

The inquiry is tipped to recommend banks hold billions more in capital – but that’s not quite as dramatic as it sounds. Capital can be raised by retaining some profit, selling assets, or asking shareholders to tip in.

Some brokers reckon that passing the hat around to shareholders – which would dilute investors – may be an option for banks. But this would only occur if they needed to raise a large amount quickly. It seems more likely they would have several years to reach any tougher capital targets.

When the banks are making so much profit from home lending, they can probably raise billions more in capital by retaining some of their very healthy profits without inflicting too much pain on shareholders. It might slow the growth in dividends slightly, but boards are extremely reluctant to actually cut the dollar amount shareholders receive.

The other risk is a sharp deterioration in the economy.

One reason bank profits are so high is they are setting aside less money for bad loans. The benefit from doing that goes straight to the bottom line, but profits would be squeezed if more businesses or home owners began defaulting. There are no signs that is happening yet, partly because interest rates are so low. But it will eventually occur.

In other words, the banks are doing very nicely, but it’s important to remember they are not bulletproof and would not escape a severe economic slump unscathed. 

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Lenders line up to sell loans online

Turning the lending process on its head: Murray Roach (pictured with his four-year-old daughter Olive) used a new website when buying his Narraweena home, that lets lenders bid for your loan so potential borrowers can choose the best mortgage for them. Photo: Jessica HromasWhen Murray Roach put his mortgage up for grabs online he was overwhelmed with 61 bids from lenders. Still, if it makes sense to auction homes, why not mortgages?
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To get more Money more often, why not follow us on Twitter? We’re @FairfaxMoney

After posting his request to re-finance his mortgage on Mortgage Free Debt Free.

Mortgage brokers reveal in the fine print the commissions they receive for successfully signing up a loan, but not other kickbacks.

They are only obliged to recommend a loan that is “not unsuitable”, as distinct from one that is the most suitable.

Although the commission is paid by the lender, not the borrower, Lee says a higher commission can influence the broker’s choice of loan.

On its moneysmart website financial regulator ASIC also warns different commissions “can potentially influence what loans the broker recommends to you.” Some brokers will refund the commission they receive from lenders.

One of the biggest Mortgage Choice says “our brokers are paid the same commission regardless of which lender you choose.” But its website also says it might receive additional payments “relating to the overall volume of finance we arrange.” Payments above $500 by lenders are published on the Mortgage Choice website.

For example, one broker was given an all expenses paid trip by Homeloans to “a conference” in Broome worth $6000.

Flongle does not accept any commissions.

“It’s completely clean. We don’t take any money except for the $389,” Lee says.

Brokers even have to reveal any commission they’ll be getting from lenders before their bid is allowed to be posted.

In some cases they pass them on to potential borrowers because the rate they quote is less than the lender normally charges.

Some brokers are also offering to rebate the $389 fee Flongle charges, Lee says.

Many mortgage brokers are submitting bids often on behalf of the big banks – the software filters out any doubling up of lenders when compiling the results — as well as smaller, lesser known lenders.

“It’s a free service for lenders so why wouldn’t they want to be there. It’s in the interests of brokers and lenders to offer the best deal because a borrower is almost in their grasp, ” Lee says.

He also claims most brokers “only deal with three or four lenders despite having far more on their lending panel.” Flongle reveals all the features of each loan and lets you choose what criterion, which may not be the lowest rate, to apply.

“‘It’s up to the consumer. You decide yourself on the facts,” Lee says.

The system also filters out mistakes and suspect bids. A common error is misquoting the cost of loan mortgage insurance.

But there have also been bargains.

In one bid a small lender discounted its discount by another 0.45 per cent and some brokers are “leveraging their buying power to negotiate individual discounts with lenders,” says Lee.

Roach emailed three of his 61 bidders and “they contacted me straight away.” You aren’t identified when your details are submitted for bids and so lenders can’t at that point check your credit rating.

But Easy Living Finance’s Tony Harris warns “you don’t know until you make the application what the lender needs, so you might not get the loan. And if you go to a decent broker you don’t pay anything.”

 @moneypotts

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Attention G20 delegates: Here are Ten Things You Should Know About Brisbane

Pass the sunscreen Vlad! Photo: Glenn Hunt Brisbane Entertainment and Convention Centre? I know a place much easier to meet up.
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Regurgitator. Fine upstanding models of the Brisbane music scene.

Oh I’m sure you’ll come to like our traffic as much as we do. Photo: Michelle Smith

A genuine Brisbane gem, the Thomas Brisbane Planetarium. Photo: Harrison Saragossi

G20: Full coverage

Welcome to Brisbane, G20 officials, delegates, security and media!

You’ve just flown into town for this weekend’s big summit, a glorious three days of photo opportunities and behind-the-scenes wheeling and dealing.

To help you acclimatise, we’ve prepared this handy guide to your host town. Sure, smartphone apps will get you around, but to know a city you must have some insight into its people and its attitude.

Therefore we present Ten Things You Should Know About Brisbane.

1. We’ve got mixed feelings about you being here.

Look, we do hope you have a great time, but we’re still peeved by all the blocked roads, public transport hassles and gung-ho security we have to deal with this week.

Of course, if there are no riots, you spend up big in local businesses and promise to make your rich friends come to Brisbane for a holiday, all of this inconvenience will be forgiven – particularly if we can also get a selfie with Barack Obama.

2. Yeah…it’s hot. Sorry about that.

Our weather is pretty glorious most of the time. Many Brisbanites fuss in summer and insist “I like the cold!”, which is generally code for “I like it between 15 and 20 degrees!”. Put them in actual cold and see how quickly they pile on the jumpers and claim Seasonal Affective Disorder.

However, forecasts for Saturday and Sunday are predicting 36 degree tops (that’s 98.7 Fahrenheit for you Americans), which is admittedly into sweaty crotch territory. This won’t matter too much to those of you cooped up in air-conditioned conference rooms and hotels, but for those of you out and about, kick back in cotton shorts and thongs. No one will judge you.

On the bright side, there is a 40 per cent chance of rain, so fingers crossed you get to experience one of our beautiful summer storms. You’ll know one’s coming if by mid-afternoon everything’s gone still, and even the leaves stop rustling. Waves of grey-black cumulonimbus will roll in from the west, sometimes tinged with an otherworldly green that signifies possible hail.

When the thunder cracks and lightning darts, you may think you’re in an apocalypse. Gutters will rise, low-lying roads will flood and the downpour is often hard enough to bruise your skull. But never fear, it’ll all move on in about 20 minutes.  Then you spend the evening in the cool, inhaling in the intoxicating scent of fresh ozone. You’re welcome.

3. Brisbane is actually quite hilly.

It’s funny, you forget about when you live here, then you pop down to Melbourne and realise how flat they’ve got it down there. And don’t even start us on Adelaide.

Brisbane is full of hills – Spring Hill, Red Hill, Highgate Hill, Cannon Hill, Camp Hill, Chapel Hill, Bald Hills, Seven Hills, Kenmore Hills, Riverhills, Wavell Heights, Stafford Heights, Carina Heights, Jamboree Heights, Mount Ommaney, Mount Coot-tha, Mount Crosby, Mount Gravatt and Mount Gravatt East.

This means that comfy shoes are advised if you’re heading out on foot, and a hat, sunscreen and water to protect you from the sun and heat. If you’re riding a bike, well, try to get up speed before you head uphill. And be careful where you cycle. Brisbane is now into the 37th year of The Great Cyclist/Motorist War, and they are bitter enemies.

4. When driving, indicating is optional and merging is a sport.

If you’re trying to get into my lane, I’m going to speed up and stop you, because I’ve got somewhere to be. Letting you in will cost me an extra two, maybe three seconds of time, time you just don’t consider because every driver but me is inconsiderate.

Conversely, when I want to merge into your lane, I most certainly won’t be indicating. I know you won’t let me in, because every driver but me is inconsiderate. My only option is to suddenly pull out in front of you, generally causing you to honk, call me a d—head and almost cause an accident.

Frankly it’s terrible behaviour, and further proof every other driver but me is inconsiderate. Whatever happened to good manners?

5. We mourn things.

The Myer Centre in the middle of the Queen Street Mall used to have a theme park on the top floor. It was creatively called “Tops”, and it had a giant tree playhouse and a roller-coaster dragon ride. You would shop to the sound of children screaming and teenagers attempting to make out. Tops was awesome, and they took it away from us. A generation has never recovered.

We mourn bigger things than that too. We yearn for the trams that used to putter along our city streets, we shed tears for the beautiful Bellevue Hotel, we declare there will never be another Cloudland (although there is now). We still wish we could spend summers at Amazons Water Park at Jindalee, and for goodness’ sake, why is it so hard to rebuild the Red Hill Skate Rink?

The cynical amongst us mourn the lack of appropriate public transport, the disappearing quarter-acre block, the reason for King George Square being revamped in concrete and the 1922 abolition of our state’s upper house. Thankfully we mourned loudly enough after the Riverwalk was washed away by the 2011 floods that they built us a new one, which we love very dearly and promise to appreciate more.

6. The north side of the river is better than the south side.

Southsiders claim the opposite. They are wrong.

7. We meet at Hungry Jack’s in the mall.

If you were to lay a stone marking the smack bang centre of the CBD, it would lie just outside the Hungry Jack’s outlet in the Queen Street Mall. For years it’s been the meeting place of choice for shoppers and teenagers alike, a comforting beacon guiding the lost and the wretched to a port of safety and burgers.

It’s also a great place to get the lowdown on trending sub-cultures: the Goths of the 90s were replaced by the Emos of the 00s, and these days it’s where you’ll find roving packs of Lolita girls. Hipsters will occasionally meet there, but only ironically.

Whether you’re meeting to shop, dine, drink, visit a museum, check out a gallery, take in a show – you will never be late or lost if you agree to meet at Hungry Jack’s.

8. Our music scene is pretty darn cool.

The recent opening ofThe Triffid in Newstead is the latest chapter in Brisbane’s long and illustrious music history.

The Saints are generally regarded as a key driver in the punk movement not just in Australia but around the world, and The Go-Betweens were so darn good at crystalising Brisbane into sound that they have a bridge named after them.

The 90s saw the flowering of innovative rockers like Powderfinger, Regurgitator, Custard, Screamfeeder and Resin Dogs, indie dreamers like George, and even pop dudes Savage Garden scored some US number 1s before it all went pear-shaped.

These days some of the best rock is coming out of Brisbane: Violent Soho, Ball Park Music, Velociraptor and Hits, while Sheppard are killing it in the indie pop stakes. Oh, and Keith Urban? Totally one of us (nobody tell Caboolture we said that).

9. Did we mention the glorious weather?

It’s just worth mentioning again, really.

10. Overall, Brisbane has some cool stuff that we should probably take more pride in.

A rich indigenous history: Check out the Musgrave Park Cultural Centre or the collection of amazing indigenous artworks at the Queensland Art Gallery.

The windmill at Spring Hill: Built on the site of a former indigenous meeting place, it was operated by the convicts for whom the settlement was created.

The Sir Thomas Brisbane Planetarium – One of the best in the southern hemisphere. It was named after an early Scottish governor who founded the first significant observatory in Australia. Brisbane is one of the few cities in the world named after an astronomer.

Excellent coffee: We are bean snobs and proud.

Game brains: Got Fruit Ninja or Jetpack Joyride on your phone? You can thank Brisbane’s Halfbrick for that.

Nature: From the beaches of the Gold and Sunshine Coasts just an hour’s drive down or up the coast, to generous parks and green, leafy suburbs, to the flowering jacaranda trees that you can still see blooming in all their purple glory –  the place really is very green and lovely compared to many cities.

Growing cultures: Brisbane produces amazing amounts of circus and cabaret work, the Brisbane Festival increases numbers and premieres year on year, and the Brisbane Powerhouse is a wonderful example of repurposed infrastructure.

A generous spirit: We all have a whinge from time to time, but when the proverbial hits the fan, we do get stuck in and help. See the 2011 Mud Army and any random karaoke night.

Drop bears and hoop snakes: These can be deadly, of course, but the City Council does regular sweeps of all urban precincts to keep numbers down (shut up the rest of you, this could be hilarious).

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