The ongoing debt problem

According to Adele Ferguson in The Australian,

CORPORATE Australia is sitting on a $200 billion debt bomb that needs to be refinanced over the next three years, with analysts warning some infrastructure and small companies will collapse under the mountain of debt.

Dividend yields

High dividend yields - can they be sustained? Here's Tim Boreham in the Australian having a look.

Let's all raise capital

Australian companies are leading the world in capital raisings it seems, and part of the reason is the Australian regulations that make capital raisings easier to undertake.

Super funds seem to be looking for investments, and rights issues at below market seem to be attractive.

Westpac cuts dividend

Westpac joins the ranks of the dividend cutters this week. Some accounting analysis helps explain why.

Big US companies buying back

A number of large US companies are starting to engage in buybacks again. Microsoft, HP and Nike are all undertaking new buybacks. Some are to signal undervalued share prices, some to manage dilution created by employee stock plans.

Here's the Wall Street Journal report.

Seven's corporate strategy

Questions have been raised about the Seven Network's corporate strategy, as well as the communication of that strategy to investors. Nick Tabakoff has the details.

Key grafs:

KEY institutional shareholders, corporate governance specialists and analysts have questioned the Seven Network's investment strategy in the wake of its revelation on Monday it had incurred losses from its strategy to "park" hundreds of millions of dollars in listed securities.

The company revealed it was down a total of $57 million on paper on a portfolio of listed stocks it has refused to disclose to the market. The company has also crystallised a total of $14 million in "realised losses" on the portfolio, after selling out of about $200 million worth of stock in recent weeks.

Hmmm, seems a bit odd. I'd sooner make my investment decisions than have Seven management do it for me.

Righst issues

An article in The Age (that I can't find onlnine, but an abstract is here. According to some Monash & Birmingham University academics, the way in which a company chooses to raise capital impacts on reputation and even company value. Balachandran, Faff and Theobald have an article in the Journal of Financial Economics. Abstract of the journal article on SSRN here.

Macquarie Bank

Here's a nice piece on Mac Bank by Michael West with some financial policy analysis (level of debt), accounting analysis (write-down of assets) and management communication (disclosure about the level of write-downs, and questions about debt levels).

Dividends and franking credits

Here's a good overview of dividends, and Australia's franking credits system (dividend imputation).

That's thanks to our system of "franked dividends" (or "dividend imputation") introduced by the Labor government in 1987 and improved by the Coalition government in 1996.

The system is logical -- and simple. When a company pays tax on its profits to the Australian government, and then pays a dividend to its shareholders, the shareholders receive credits ("franking credits") for the income tax already paid by the company. These credits, which apply whether the Australian resident owns shares directly or through a managed fund, are included in the shareholder's tax return both as income and as tax already paid.

The extent of the benefit depends on the shareholder's marginal rate of tax. If the company pays tax on its profits at the full company tax rate of 30 per cent and distributes a dividend, a taxpayer on the 30 per cent tax rate (which this year applies on taxable incomes of $30,000 to $75,000) effectively receives the dividends tax-free.

Have a look at the whole article. Note also the impact of continuing economic uncertainty could result in decreases in dividends, or at least a stop to increases in them. Probably more so in the U.S than here.

"Re-equitisation"

Jeebus. Apparently that's what they're calling the process of getting more equity onto the balance sheet. That's what happens when debt falls out of favour. Which is currently is. See Michael Sainsbury's analysis here. In the case of Wesfarmers, getting shareholders to stump up more money to pay back the loans taken out for the Coles takeover.

ABC Learning: debt issues

Some financial policy analysis; particularly leverage (debt).

The unfortunate ABC Learning again. The amount of debt, the conditions relating to the debt, and the quality of assets supporting the debt are all referred to here.

Dividends and future profits

Looks like dividend payout ratios aren't on the increase. If you take dividends as a signal of future profitability, then that's not great news. John Durie (I can't find the article online; page 35 of the 24-25 Aug Weekend Oz) notes that in the current reporting period EPS is up on average 14.6%, sales growth up 9.4%, but payout ratios down to 64.5% (average in the last 8 years at 71%).

Financial policy decisions

Tim Blue in the Weekend Australian writes a nice article about BHP's upcoming decision about financial policies (especially dividends and buybacks - on market vs off market). Whether shareholders will want some of the spoils returned as a fully franked dividend, or as a buyback will depend on their tax preferences.