jumping out, page-15

yesterday people were ramping institutional support well after reading this article this morning - the gloss faded.

cott Murdoch | January 07, 2009
Article from: The Australian

BABCOCK & Brown is lobbying its financial backers to approve an intricate debt-for-equity swap.

This is believed to be a final bid to secure the future of the troubled investment bank.

The company submitted a refreshed business plan a fortnight ago to the international syndicate of banks that provided a short-term $150 million lifeline to keep the group afloat.

The plan is now under consideration by the banks. A key feature is an equity swap that would significantly cut back Babcock's debt levels, but effectively leverage control of the company to the financiers.

The banking syndicate, which is headed by the four major banks and overseas lenders, was expected to give guidance to Babcock by Friday as to whether the plan would be accepted.

The new business plan would also direct the setting of fresh debt covenants for the group's existing loans with the banks.

However, Babcock said last night that an announcement could be delayed until early next week, while the banks decided on the company's future.

Babcock shares soared 54 per cent yesterday on turnover of 47.3 million shares, compared to its average of just 7 million over the previous five trading sessions.

The Australian Securities Exchange was forced to question the increase in the stock's valuation given that it had moved from 15c last week to yesterday's close of 38.5c.

"BNB notes that it has previously foreshadowed a debt-for-equity swap as part of any permanent capital restructuring," the company told the ASX.

"Any debt-for-equity swap, or similar arrangement to allow BNB to continue operating its business and selling assets as appropriate, will significantly reduce the value of any existing equity," the company added.

The support for the shares is thought to have come predominantly from non-institutional investors, given the stock was sold in relatively minor parcels.

The largest institutional trader, UBS, was not present in the stock's trading pattern yesterday. Similar large moves have been evident in smaller stocks that have been oversold in recent week.

Babcock has undertaken a string of asset sales in recent months as it tries to shore up its cash flow and the financial future of the company.

It has relinquished the management rights of Everest Babcock & Brown, its wind satellite, and will sell its stake in Sydney Gas.

Babcock held 20 million Sydney Gas shares, over which it struck a pre-bid agreement with AGL Energy late last month, and it owns $15.5 million worth of convertible notes.

Those notes will convert into 36.6 million shares, or 8.4 per cent of the company, which Babcock said would be sold into AGL's takeover bid.

The banking syndicate has been headed by the four major retail banks, which, it is understood, are pushing the international financiers to grant approval for the new business plan.

Westpac is leading the charge given it has a $240 million exposure to Babcock, with the lending split between secured and unsecured.

The international banks could prove a stumbling block once more, given the approach by German banks HypoVereinsbank and WestLB to the fresh loan sought by Babcock in December.