Archive for Asset spinoffs

Reports shows just how poor Brazil’s transport infrastructure is. // Two decades of progress hope — wasted on things like global soccer get them this

Something to reflect upon from a Bloomberg global news story on Oct 7, 2015

Two decades of promised growth and investment. Much of it wasted.

Now Brazil is forced to compete against nations like Mexico who have far superior road and highway infrastructure that move their supply chains. What a shame. What a mistake. Where was the oversight due diligence during all of those years?


Gerald Lee, a former airline executive, thinks he can help ease one of Brazil’s most-absurd problems: “How do you ship large quantities of goods fast from the nation’s manufacturing hub when there’s not a single usable highway in or out of town?” Barge it down the Amazon River for a ten day transload supply chain. That is the best he can make out of a bad situation.

What happens is that products like TVs made in deep-in-the-jungle Manaus float down the Amazon River by barge to the Atlantic Ocean port town of Belem. From Belem, the goods go on trucks for pothole-filled delivery runs, many of them to distribution centers in Sao Paulo, about 1,600 miles away — and 10 days later.


That can be more than twice as long in time as an 18-wheeler traveling a similar distance from Mexico City to the U.S. road-and-rail hub of Kansas City, Missouri. Or to even closer Houston.

When people criticize Brazil’s transportation infrastructure for being among the worst in the world, behind even Ethiopia’s, this is what they’re talking about.

Manaus, the nation’s only tax-free zone and home to 40 percent of its computer and electronics manufacturing, is just one of many reasons the World Bank says companies in Brazil spend more on logistics than in the U.S.  Moving many of Brazil’s exports can take twice as long as out of Mexico.

This was going to be fixed. But it never was.

How long will the needed investments take? No one is saying. I professionally would expect about 15 to 20 years.

The funding for long promised roads and railways is uncertain.

Heck, one point two years ago Brazil was promising foreign aid to help build Ethiopia railways. Unbelievable? Fact is often stranger than fiction.

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Signs that China may try to enter foreign rail markets by buying local established rail company vendors

From Bloomberg, Sep 9, 2015

Bombardier rejected an offer by Beijing Infrastructure Investment for 60 percent to 100 percent of Bombardier Transportation, Reuters reported earlier.

Reuters cited an Aug. 14 letter outlining the bid.

Louis Veronneau, vice president for mergers & acquisitions, rejected the proposal…

The approach was made by Beijing Infrastructure.

This type of acquisition would make Chinese sales into North American and European markets easier. But after an acquisition, much of the building content work could shift to China while still using the bought vendor brand name.

Montreal-based Bombardier is as an alternative planning an initial public offering of the rail unit during the fourth quarter of this year.

It is trying to reduce debt swelled by the development of the CSeries jet.

In July, Bombardier also denied a report that it was in merger discussions with Siemens AG over the unit.

Beijing Infrastructure’s reported offer gives Bombardier Transportation an enterprise value of $6 billion to $7 billion…    …a “reasonable valuation range” for the unit in an eventual IPO according to Canaccord Genuity analysts David Tyerman and Tao Ding says a Bloomberg report.

The Chinese meanwhile are exploring other opportunities to acquire North American rail companies.

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Courts and government finally okay. But no one seems to be buying the Goa iron-ore

Often, by the time governments, courts, and investors get ready to sell off assets or commodities in a dispute, as in India, the markets are not buying. Without willing buyers, there is “no sale”

This example is from India. While iron-ore mining in the western Indian province of Goa is now finally poised to resume mining within a month, there are no takers for the raw material. That is code meaning “no buyers”.

The result is more stockpiling of the old inventories and a space crunch for any new mine production that the government and courts say can now go ahead.

According to a Goa government official, of the total 15-million tonnes of old iron-ore fines inventory occupying stockyards and India ports, only six-million tonnes have been liquidated AFTER SEVEN ROUNDS of AUCTIONS to sell it. The government is still pushing hard to auction another one-million tonnes of iron-ore before mining operations up country can resume next month.

Citing an example, an official said that as the seventh round of auctions concluded last week, only 50,000 metric tonnes was sold against an offer of one-million tonnes. Under the circumstances, the government is facing an uphill task in liquidating nine-million tonnes of old stocks and the department of mines can do very little to make space for new mined iron ore that will arrive soon. The resumption of mining in Goa was expected to be led by Vedanta Resources, which was readying to get production from its Codli mines under way, starting around mid-October.

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Examples of how quickly prices like scrap steel can change in a rail project like an abandonment or a subsidized line service asset valuation

It is important to consider market realities when undertaking net liquidation or rail track materials and other rail project economic assessments under ICC/STB regulatory procedures for railways.

Market prices can swing dramatically.  15% range within a week’s time as shown in one exhibit and extreme ranges of 70% monthly.  These are not theories.  These are actual market force occurrences.

The two attached exhibits identify price of materials and scrap changes over two different time periods using two different data sources.  The URL for the sources are noted if you  care to check for more information.

Collecting railroad materials and holding onto them for long term value change and higher price sales can be risky.  Timing of sales for scrap or for possible but limited relay use is an art form.  It may require hedging.

Steel scrap collected in the period after the global recession of 2007-09 and held for higher prices is now in mid year 2015 worth a lot less per ton (or metric ton).

These prices swings are important to railway asset managers from the US to South Africa. — and from Brazil to Mongolia.  The market for scrap rail is global and highly influenced by the risks and opportunities today in the China steel market.

Scrap rails and rail materials along with all forms of scrap steel are also seeing price competition from the sale of unused steel billets that are worth more than the miscellaneous scrap.  When the price ranges are close, the demand for scrap declines.


Examples of price volatility in real steel markets j Blaze

Market Timing & Price Volatility of Scrap against

What happens when asset sales slow down? As buyers are few.

From Bloomberg, Jul 28, 2015

Big oil companies are trying to spin off assets to generate cash and rebalance their Balance Sheets.

South Africa’s government wants to sell off assets to generate funding for its troubled monopoly power company

What happens when buyers are in no rush to do a deal?

More about this can be found on Bloomberg as oil giant BP Plc’s second-quarter profit were reported this morning and it missed analyst estimates. Part of its strategy is to sell off assets. Finding buyers at the right price seems to be difficult! That could mess up a lot of strategic plans.

To read the entire article, go to