Babcock and Brown investors kept in the darkFont November 25,...

Babcock and Brown investors kept in the darkFont

November 25, 2008
Article from: The Australian
WHEN things get tough in the financial markets, the first casualty is effective communication.

Babcock & Brown's current attempts to starve its owners of information have simply led to shareholders filling in the gaps with worst-case-scenario assumptions and rumours.

Many have jumped straight to the conclusion that the company is in its death throes.

The market had written off B&B last week, sending the share price crashing to 25c before a trading halt was put in place.

B&B's executives are masters at getting what they want. They will need all their skills to renegotiate the $3.1 billion in debt which is due shortly. Indeed, it seems that the Australian banks in the syndicate, both large and small, are keen to keep B&B on life support for at least a little while longer.

However, there appears to be division within the banking syndicate, with some offshore banks steeling themselves for some axe wielding. The company's announcement last week of a dispute with "a bank" over "a deposit of a material amount" is perhaps the most significant in its history, as it will either make or break its rescue efforts.

Yet shareholders were forced to turn to the media to discover that the bank involved is the troubled European institution HypoVereinsbank. There is also speculation over the amount, which is estimated to be between $70 million and $150 million.

Yesterday also saw the departure of directors Deiter Rampl and Joe Roby, although the company announcement failed to provide any reason for their resignations.

The transparency deficit leads to speculation -- were Rampl and Roby deserting a sinking ship, or sacrificed to appease the banks? Perhaps Rampl's prior role at HypoVereinsbank played a role.

One thing is guaranteed in these types of situations -- investors assume the worst. It was always going to be a miracle to have the dispute settled by yesterday's opening, and inevitably the shares have now been suspended.

Another European Bank, WestLB, has added to speculation by stating that appointing an administrator to B&B was a default situation for a number of lending agreements.

The company is not in default. However, the indication is that the European contingent of the banking syndicate is in no mood for granting favours.

There have also been reports that Peter Anderson from McGrath Nichol, the insolvency firm managing ABC Learning's administration, had been retained to offer restructuring advice. This may be just another rumour doing the rounds. Or it may be that B&B did not care to mention it to investors. Again, investors kept in the dark think the worst.

Stuart Wilson is the chief executive of the Australian Shareholders Association