http://www.theaustralian.news.com.au/business/story/0,28124,26165...

http://www.theaustralian.news.com.au/business/story/0,28124,26165082-36418,00.html

KEY component of Babcock & Brown Infrastructure's recapitalisation proposal -- an ambitious $650 million equity raising -- is believed to be struggling, as investors question the debt-laden company's ability to turn its fortunes around.

BBI said on Friday that it was confident it would be able to inject badly needed capital as part of a recapitalisation necessary to rescue the company, which has more than $10 billion in debt, including $205m due to mature this month.

The company requested a trading halt more than a week ago -- its third in a month -- to enable discussions to take place with investors.

However, it is understood that some of the investors approached to take part in the equity raising are baulking at the deal on the basis that they are being asked to pay a premium to Asciano's 2011 earnings before interest, tax, depreciation and amortisation (EBITDA) multiple of 8.3 times.

They argue that the rival infrastructure player is the best-positioned to capitalise on the huge opportunities in shipping Queensland's coal and, unlike BBI, it owns 100 per cent of its key port and rail businesses.

Sources said it was not surprising that the equity raising was struggling, given investors were being asked to buy stock in the company -- to be rebadged Prime Infrastructure and controlled by Canadian fund manager Brookfield Asset Management -- without any other significant changes that would create any confidence that it could arrest the massive value destruction the current management team had presided over during the past three years.

In sharp contrast, if the Brookfield recapitalisation proposal is completed, BBI will have non-controlling positions in three of its four largest valued equity positions -- Natural Gas Pipeline of America, 26 per cent; Dalrymple Bay, 50 per cent; and Powerco, 42 per cent.

In addition, they argue that its medium-term EBITDA growth rates (post the Dalrymple Bay uplift in 2010) will be close to inflation rates.

BBI has previously rejected an alternative recapitalisation proposal by a group of hedge funds being advised by Royal Bank of Scotland.

That deal involved a recap of $1.5bn and was rejected on the basis that it contained only $500m of new equity, with the balance made up of debt and debt-related securities.

Under that deal, RBS pitched the proposition that investors had the opportunity to buy stock at lower multiples and the company retained full ownership of key assets like Dalrymple Bay.

As one observer said: "If the equity raising fails, it wouldn't be surprising if the company revisits the RBS deal."

Alternatively, BBI would have to rejig the Brookfield proposal.

The company is expected to update shareholders on the status of its recapitalisation this week.