I don't think S&P is doing the wrong thing here, bearing in mind that (1) S&P is now a more responsible rating agency; and (2) presumably most of the holders of Basslink's total AUD676.0m bonds (in 2 issues, due Aug2015 and Aug2017, respectively) are big and small Australian institutions, which are more accustomed to relying on a good credit rating for their lending/investing decisions. I also believe credit should be given to the analyst from Kim Eng for highlighting this case and for his 'SELL' call.
Cityspring unitholders who have been happily taking in their quarterly DPUs should really sit up and take a good look at the latest (30Sep10) B/S, both at the group and trust levels.....
http://info.sgx.com/webcoranncatth.nsf/V...8003E9813/$file/SGX_announcement_11Nov10.pdf?openelement
At the group level, as at 30Sep10, Cityspring had total gross debts of $1,531.6m, and cash and bank deposits totalling $150.3m, giving a net debt position of $1,381.3m - against a total unitholders' funds balance of only $346.39m.
At the trust level, as at 30Sep10, there was an outstanding $141.4m corporate loan (due in Aug2011), and cash and bank deposits totalling $51.1m, giving a net debt position of $90.3m - against a total unitholders' funds balance of $603.6m.
Quite clearly, the present high gearing at group level is quite untenable, especially if we take a longer term view.
Since its IPO - priced at $0.89 - in Feb2007, Cityspring already had in Sep09 a massive 1-for-1 rights issue at $0.48, raising $227.5m (nett) which was applied solely to repay debts.
A quick look at the historical price chart (till 5Jul10 only) since IPO will confirm Cityspring as a menace, destroying quite a lot of shareholders' value already.....
http://finance.yahoo.com/echarts?s=A7RU....=undefined
I think it is also important to note that since the capital raising via the rights issue in Sep09, Cityspring's price has remained range-bound at the average $0.60 level - i.e. the counter has not paced the overall market advance in the past 18 months.
If Cityspring's bondholders want out, would Temasek come forward?
Lessons to be learned - In investing, just can't push to use gearing or financial engineering all the way. For investors, it is obviously not safe enough just blindly go for big size, reputable sponsor, regular dividends, and good dividend yield.