power firms assets on the line

Power firm's assets on the line
Email Print Normal font Large font AdvertisementDanny John
May 24, 2008

THE besieged generating firm Babcock & Brown Power has been effectively forced to hock the bulk of its power stations to its banks to raise $2.7 billion of expensive new debt, as it struggles to restore investor confidence after another plunge in its share price.

In a hastily arranged market briefing designed to put a floor under its plunging stock, BBP admitted it had badly handled the news of its latest debt refinancing efforts to cover a mountain of liabilities, which has now blown out to $3.4 billion.

Leaks earlier in the week about the state of its cash needs, and an announcement from the company on Thursday that was thin on detail, led to its share price falling from $2.01 to just $1.18 over three days to yesterday's close. The stock has lost 39 per cent since Tuesday.

The sharp falls have also prompted BBP's creator and key investor, Babcock & Brown, to stand behind the fund as a "lender of last resort", although the B&B chief executive, Phil Green, said yesterday he was confident there would be no need for such a move.

"We expect that the banks will fund it," said Mr Green, who threw B&B's support behind the fund's beleaguered management, including chief executive Paul Simshauser after he accepted the blame for the announcement that caused a drop in share value.

Saying he had "delivered an uppercut rather than a helping hand", Mr Simshauser accepted the ASX notice had created more uncertainty rather than resolve the debt issue. His admission prompted Mr Green to say BBP's board would discuss the poor handling of the latest market disclosures.

It also emerged in the briefing that BBP is having to raise the rest of the cash in two extra tranches to help meet a debt-refinancing deadline by August 2008 and provide additional investment for its power generation assets.

Altogether, it requires a further $700 million over and above the $2.7 billion it is close to garnering from a syndicate of 11 banks. Nine of them had agreed in principle to provide the money and the other two were to sign-up shortly, Mr Simshauser told analysts yesterday.

But the impact of the global credit crisis means BBP will be paying between 130 and 150 basis points - 1.3-1.5 percentage points - over official cash rates - on the $2.7 billion, which will see its interest costs soar.

With the banks only willing to advance the money with security over key assets, BBP is having to pay a further 1 percentage point on top of that interest bill to take on an additional $360 million of debt at the corporate level. Part of the remaining sum could come from an equity raising - of $135 million - although its falling share price and the resulting pressure for extra cash to pay dividends on the new stock will make that hard to pull off.

The fund said yesterday it was looking at selling power stations to plug the financing gap. Chairman Warren Murphy said BBP had received a couple of approaches but had not started negotiations, as it had yet to decide which assets would be put on the block.

The additional information, though, failed to pull BBP out of its market dive, with the fund losing a further 31 cents after returning from a trading halt yesterday. BBP is now worth $856 million, having lost $600 million in value in less than a week. The company said it was still on track to deliver on its 2008 expectations but it gave analysts no clear indication of guidance for the following year .