Babcock to suspend shares as rescue deal nutted out
Scott Rochfort
January 12, 2009
http://www.businessday.com.au/business/babcock-to-suspend-shares-as-rescue-deal-nutted-out-20090111-7edb.html
BABCOCK & BROWN Limited is expected to suspend its shares from trading this morning after the company's bankers continued to mull over a last-ditch proposal to save the stricken investment manager.
The suspension is expected to last well into next week, providing Babcock's bankers ample time to consider a restructure under which part of the group's $3.1 billion of corporate debt would be swapped into an equity stake. Sources close to the 25-strong banking syndicate said a final decision might not be made until the middle of next week. Babcock originally indicated its bankers would make a decision by this morning, after going into a trading halt on Thursday.
All of Australia's big four banks along with Suncorp Metway are part of the syndicate.Westpac is the most exposed. It is owed about $250 million; the Commonwealth Bank is owed about $200 million.
The proposed restructure was pitched to the banking syndicate early last month. This was before the company warned on Thursday that it expected impairment charges in its full-year accounts would put it into a "substantial" negative asset position.
The group has $14.1 billion of assets on its books on top of its $11.5 billion of liabilities. It already booked a $441 million loss from write-downs in its real estate business in its half-year results last August.
Either way, many Babcock shareholders have little chance of getting much of a return on their investment. Since their peak of $34.78 in 2007, Babcock shares have fallen to 32c, taking the company's market capitalisation to about $120 million. Even if the group was saved from collapse, any debt for equity swap would mean its remaining share base would be heavily diluted.
Babcock has been at the mercy of its bankers since June, after a fall in its share price triggered a "review" of a three-year, $2.8 billion debt facility that had only been refinanced two months earlier. The banking syndicate at that time let Babcock off the hook. Since then Babcock has announced two restructures, the first involving the resignation of its highly paid chief executive, Phil Green.
The banks agreed to a $150 million cash injection to keep Babcock afloat early last month, with a hefty interest rate 6 per cent above the cash rate. The extra funding was provided to give Babcock more time to offload its assets and avoid the possible fire sale that could result if it was wound up.
At the time, Babcock also agreed to a debt for equity swap to be completed by April 30.
Apart from its $3.1 billion of corporate debt, Babcock has about $6.5 billion of debt secured against its assets.
This does not include the debt in various satellites such as Babcock & Brown Infrastructure, which has $8.6 billion of borrowings on its balance sheet, and Babcock & Brown Power, which has more than $3 billion. These debts do not include other debts that are attached to the power station and other infrastructure assets run by the two funds.
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