Babcock warns of investor wipe-outSTUART WASHINGTONOctober 19,...

Babcock warns of investor wipe-out
STUART WASHINGTON
October 19, 2009
BABCOCK & Brown Infrastructure is warning its investors they face a wipe-out if they choose to reject the proposed $1.8 billion recapitalisation of the troubled company.

Under numbers run by BBI's camp, investors in ordinary shares and those in exchangeable preference shares face bleak scenarios if they choose to ignore the recapitalisation and go it alone at the November 16 meeting.

In scenarios involving a sale and break-up, one in good market conditions and another in weak market conditions, ordinary shareholders would receive nothing.

And exchangeable preference shareholders (EPS) holding notes with a face value of $779 million would receive 14¢ in the dollar in the more favourable scenario but nothing in the second.

Chief executives usually shun spruiking these kinds of forecasts, but BBI's Jeff Kendrew says the business is facing few alternatives.

''It's a stark choice between crystallising a known value now and highly uncertain outcomes through a prolonged asset sale which is effectively going to be managed by BBI's banks,'' he said on Friday.

More than 50 per cent of ordinary shareholders are being asked to embrace a recapitalisation that effectively knocks them out of the company - they would be left with a 0.1 per cent stake - with compensation from a 4¢-a-share dividend.

And more than 75 per cent of EPS holders are being asked to take a haircut, too, receiving 43¢ in the dollar for their convertible securities.

The even worse outcomes in the two sale-and-break-up scenarios are due to thuge debt - $9.2 billion - within BBI's structure.

High transaction costs could eat up available equity. For example, about $130 million in state taxes would need to be paid if Dalrymple Bay Coal Terminal were sold for $2.35 billion, heavily eating into $600 million in cash proceeds.

BBI's camp hopes many EPS holders will see the merits of the deal.