B&B seeks Holy Grail of comeback November 20, 2008 http://business.smh.com.au/business/bb-seeks-holy-grail-of-comeback-20081119-6bjf.html?page=1
At the bottom of most corporate announcements, you'll often find a few paragraphs that proudly proclaim the achievements of the organisation.
Babcock & Brown has such a blurb. It reads in part: "Babcock & Brown operates from 30 offices across Australia, North America, Europe, Asia, United Arab Emirates and Africa and has in excess of 1400 employees worldwide."
It also boasts of the group's "longstanding capabilities in structured finance and the creation, syndication and management of asset and cash flow-based investments".
That statement accompanied yesterday's announcement, a document that all but spelt out a timetable for burial of the company.
If there were any lingering doubts that B&B is in a desperate race to wind itself up before its lenders seize control, they were dispelled yesterday with the release of "Update on Strategic Review and Proposed Changes to Corporate Bank Facilities".
The parent company plans to rid itself of most of its businesses - except its infrastructure assets - and in the process bring total job cuts to 1000 employees.
On the block are all the real estate assets, operating leasing businesses and corporate and structured finance operations along with - wait for it - the company's $400 million loan to its deeply troubled offshoot, B&B Power. There is bound to be a rush for that one.
The idea is that the sales will slash the head company's $3.1 billion corporate debt by more than half by 2011.
It all sounded so positive, so upbeat and so devilishly clever in its simplicity that it seems a shame to throw a wet blanket over it.
But there are a couple of home truths that, try as you might, are just too difficult to ignore.
The first is no one has any money to buy anything. The second is, even if some group could get access to cash to buy assets, B&B's wouldn't be top of the wish list and more likely would be on the things-to-avoid-at-all-cost list. And the third is - 2011. That's, um, years away.
Then, of course, there was the admission that the company was having difficulty complying with its lending covenants and was likely to be in breach in the "near term". How to fix that? Simple. Initiate discussions with the banks on renegotiating the covenants although these discussions "may not be concluded before the end of December this year".
Perhaps it has escaped the attention of B&B's chairwoman, Elizabeth Nosworthy, but asset prices are heading south at a rate of knots as most of the world heads into recession. So there's more than a fair chance that B&B would clock up a loss on anything it sells Then, of course, there's the sticky question of whether - assuming any of the assets are sold - there is enough cash generated by the remaining infrastructure businesses to cover the outstanding debts.
Take its Japanese real estate trusts. Most of the buildings are old and largely unwanted and Japan this week declared itself officially in recession.
Selling its management rights in this market is hardly likely to attract a stampede of buyers. But offloading the rights will deny the company much needed cashflow.
It will come as no surprise that investors greeted the strategic review update by jumping ship.
Babcock & Brown shares dived just on 20 per cent, finishing the day at 25 cents after recovering from a 22.5-cent nadir. It was a similarly dismal tale among the satellites.
B&B Infrastructure was savaged as well, dropping more than 11 per cent to 47 cents while B&B Power barely managed to stay above water with an 11.5 per cent plunge to 4.6 cents. B&B Wind Partners bucked the trend, rising 1 cent to 80 cents.
With Phil Green and Jim Babcock gone, it was up to the recently appointed B&B boss, Michael Larkin, to fly the flag. You have to give him marks for enthusiasm. There was so much talk about pipelines and platforms, you could have sworn he was in the oil business.
In fact, Larkin resembled the Black Knight from Monty Python's Holy Grail. The company may be losing limbs left, right and centre. But, for Larkin, it's just a flesh wound. The talk was all about opportunities. They're everywhere from North America, Europe, Australia and all across Asia.
Whittling the entire business down to infrastructure should make B&B "well placed to return to growth".
It doesn't seem that long ago that B&B was riding high. Its 2004 listing was one of the most successful on record as its shares, issued at $5, climbed relentlessly during the boom, peaking at $34.78.
Once worth $10 billion, B&B these days is valued at less than $100 million - not a great position when you owe more than $3 billion.
BNB Price at posting:
25.0¢ Sentiment: None Disclosure: Not Held
