Two stabs at an Alinta homecomingJAMIE FREEDNovember 19, 2009...

Two stabs at an Alinta homecoming

JAMIE FREED
November 19, 2009
The vultures are already circling Babcock and Brown Power.

BBP, which remains suspended from trading as it digests the implications of what is widely expected to have been a negative decision on the arbitration of gas supply contracts, is expected to provide an update to the market as early as today.

The fate of the company, which last night revealed plans to rename itself Alinta Energy, is in the hands of a banking syndicate. It provides a $2.6 billion facility that is a current liability unless it is restructured.

A report from Perth that BBP has forbidden staff from purchasing crucial machinery parts in the last week is hardly encouraging.

In the meantime, Insider has learnt that Patersons Capital Partners, a private equity arm of the Perth brokerage Patersons Securities which is run by three former Alinta executives, has made two proposals to buy the Alinta retail and industrial business within the last six months.

PCP has approached the lenders and expressed interest in conducting due diligence, but so far it has been rebuffed. The deal would involve injecting equity and taking on some of BBP's debt.

However, the potential purchase is complicated by the fact the syndicated corporate facility is secured by the majority of BBP's assets rather than tied to individual components.

PCP thinks its approach could prove attractive to the West Australian Government, because it would return management of Alinta's retail and industrial business to Perth. BBP's headquarters are in Sydney.

But no deal can be struck until PCP has access to the arbitrator's decision about the price for gas supply from the North-West Shelf.

It is believed the historic contract price is about $3 a gigajoule, but market rates have now risen to at least $8 a gigajoule.

The issue for BBP is that residential prices are regulated and cannot be raised simply due to an increase in the cost of gas supply. Industrial and commercial volumes are negotiated on a case-by-case basis.

For example, BBP may have locked in long-term industrial and commercial contracts based on the assumption it will pay $3 a gigajoule for gas, and therefore it would take a substantial loss if that price rose to $8 a gigajoule and it was not able to pass on the increase to its customers. BBP can barely meet its interest payments at the current contract price.

PCP hopes that some of the contracts could be renegotiated if the division came under new ownership, as the Alinta retail and industrial business is an essential provider in WA and no one wants to see it fold.

It is not clear whether other potential bidders have approached BBP or its bankers about buying part or all of the company or plotting a recapitalisation. BBP's largest shareholder is Guinness Peat Group, which has a 10.6 per cent stake.

http://www.theage.com.au/business/two-stabs-at-an-alinta-homecoming-20091118-imj6.html