red ink threatens b&b's survival

Red ink threatens B&B's survival

Danny John

January 8, 2009

THE dire state of the investment group Babcock & Brown's finances was underlined last night after it disclosed that the value of its remaining assets would be completely overwhelmed by substantial write-downs and write-offs to be taken on its latest year-end results.

In what amounted to a major profit warning, the scale of the asset impairment charges will see B&B next month report a "substantial" negative net asset position. It is also likely to be one of the worst reverses in value for an Australian company during the global financial crisis.

B&B has been forced into the downgrade by a need to switch many of the remaining assets on its debt-battered balance sheet from a previous desire to retain ownership of them to having to sell much of what is left.

Large-scale one-off charges are also likely to see much of B&B's previous profit growth wiped out, capping a dramatic turnaround in fortunes after its record earnings of just 12 months ago.

The group warned at its half-year results in August that its full-year 2008 figures would not beat last time's $643 million after previous forecasts - made as recently as last May - that they could go as high as $750 million.

The financial reversal, which included a 30 per cent drop

in half-year profits after

$386million of impairment charges, cost the former chief executive Phil Green and executive chairman Jim Babcock their jobs.

A subsequent decline in asset values accompanied by a crashing share price and a $3 billion debt burden has since had the group battling to survive.

Its future depends on its banking syndicate, which has to agree to a new business plan that includes a debt-for-equity swap. That will drastically cut what value is left for shareholders.

The sensitivity of yesterday's announcement reinforced the state of its beleaguered investors who have seen its share price fall from more than $30 just 16 months ago to little more than a few cents in recent weeks.

B&B released an update on its "forecast 2008 final result" for the year ended December 30 after the sharemarket closed.

The statement followed a burst of trading in its shares in the past few days which saw their value more than double from 15c to 38c. They slipped back 6c - 15 per cent - to 32.5c during yesterday's session (before the announcement).

http://business.smh.com.au/business/red-ink-threatens-bampbs-survival-20090107-7bz7.html