Nov. 14 (Bloomberg) -- Babcock & Brown Ltd.'s fight to avoid...

Nov. 14 (Bloomberg) -- Babcock & Brown Ltd.'s fight to avoid becoming Australia's next victim of the credit crisis may depend on convincing bankers that it can sell assets in a market where others have failed.

Babcock slumped 51 percent in Sydney trading since Nov. 6, when ABN Amro Holdings NV analyst John Heagerty said the owner of wind farms and real estate may breach loan agreements next year. It must repay A$400 million ($266 million) -- twice its market value -- of a A$2.8 billion loan to a group of banks.

The Sydney-based company will compete with distressed asset sellers from Detroit to Brisbane to avoid the fate of Allco Finance Group Ltd. and ABC Learning Centres Ltd., two Australian companies that were placed in the hands of outside managers this month. Babcock & Brown Infrastructure Group, one of Babcock's 12 publicly traded funds, said Nov. 5 that divestments are ``extremely difficult.''

``Babcock's fate is really in the banks' hands, and they are in this to see what they can get back for themselves,'' said Scott Marshall, head of research at Shaw Stockbroking in Sydney. ``For the remaining shareholders, it appears to be a lost cause.''

The company, founded in 1977, is the worst performer on the MSCI AC Asia Pacific Index of 988 companies this year, tumbling 98 percent. Chief Executive Officer Michael Larkin, promoted to replace Phil Green in August after the company posted its first drop in profit on Aug. 21, declined to comment.

Buyers Evaporate

Allco Finance, which like Babcock piled on debt to buy assets and spin them off to investors when credit was cheap, handed over operations to Tony McGrath and Joseph Hayes of corporate advisory firm McGrathNicol & Partners last week after failing to repay banks on time. So did ABC Learning, the world's biggest publicly traded childcare provider.

Babcock's interest cover ratio -- a measure of its ability to repay debt -- was 5.3 at the end of June, the company said. That exceeds the 3 times ratio required by its bankers. Interest bearing debt stands at A$9.6 billion.

Babcock agreed to pursue asset sales to cut debt on June 30 after its market value slumped below a threshold that allowed bankers to start reviewing the company. It was also forced to pay an additional A$10 million a year in interest.

The problem is finding buyers. Private-equity investors have pulled back after the credit crunch caused funding to dry up, and companies are bracing for slumping demand as economies worsen, said ABN's Heagerty.

Buyers Evaporate

``In extremely unstable markets, there are usually no sellers, unless they are forced sellers, and no buyers,'' David Bonderman, founder of private equity firm TPG Inc., said yesterday at a conference in Hong Kong.

Babcock & Brown Infrastructure on Nov. 5 said it scrapped plans to sell a stake in a gas distribution unit, citing a lack of buyers. Lend Lease Corp., Australia's largest developer, on Nov. 13 dropped efforts to sell its half of a U.S. shopping mall, sending its shares tumbling 9 percent.

``Selling assets in this market is extremely difficult -- many would-be buyers are capital-constrained themselves, and the opportunists have a glut of options to choose between, which can result in downward pressure on prices,'' BBI CEO Jeff Kendrew told shareholders this month.

`Bad Boy Watchlist'

Babcock shares, which peaked at A$34.78 in June 2007, rose 3.6 percent to 57.5 Australian cents at 11:02 a.m. in Sydney. Analysts, including Shaw's Marshall and Wise-Owl.com's Tim Morris, said little would be left for shareholders should banks call in their loans.

``Shareholders will get nothing back as creditors will rank ahead of them,'' Morris said.

Officials for Babcock's lenders including Royal Bank of Scotland Group Plc and Australia's four largest banks declined to comment. UBS AG analyst Jonathan Mott has Babcock on his ``Bad Boy Watchlist'' of Australian companies with debts that may sour.

Babcock said last month it had been approached by potential buyers it didn't identify. The Australian Financial Review's ``Street Talk'' column reported Nov. 12 that buyout firms, including New York-based Kohlberg Kravis Roberts & Co. and Carlyle Group in Washington, held discussions with the company. The same day, Babcock said that ``the process is ongoing,'' without elaborating.

Stakes for Sale

A 50 percent stake in the Enersis wind power project in Portugal, 9 percent of oil project developer Coogee Resources Ltd. and overseas real estate are among the assets that Babcock has put up for sale.

The value of the Coogee Resources stake dropped 37 percent to A$139 million in the six months ended June 30, according to Babcock's fiscal 2008 financial report. The price of crude oil has declined about 60 percent since the end of June. Coogee said on Oct. 14 that the sale of the entire company was scheduled for completion by the end of November.

Babcock owns properties ranging from industrial and urban projects in Italy to 28,000 apartments in the U.S. The fund said last year the value of its stake in European and U.S. real estate held in a venture with GPT Group fell 18 percent to A$6.6 billion.

Union Fenosa SA and Iberdrola SA are among companies that submitted bids for Babcock's European wind assets, three people with knowledge of the plan said in June. Babcock in December 2005 bought the Enersis project for 490 million euros ($626 million) and then sold half to affiliate Babcock & Brown Wind Partners.

Babcock said June 16 it was ``confident'' the wind assets would be sold this year -- an assumption Heagerty said may prove too optimistic.

``The sale of Babcock's wind assets is likely to be postponed further given the difficulties for the acquirers in obtaining financing,'' he said.

To contact the reporter for this story: Stuart Kelly in Sydney