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Debt fears fuel sell-off of B & B Power
Email Print Normal font Large font Scott Rochfort
May 23, 2008

BABCOCK & Brown Power has triggered fresh concerns it could become desperate for cash, after warning it will need to raise an additional $300 million in capital to help fund the construction of five power stations already under way.

Securities in the Babcock & Brown managed fund fell 26 per cent to a new low of $1.38 yesterday, after the company said it was "considering its overall capital structure and appropriate gearing level".

"There are a number of options available to fund the additional capital commitments, including debt, asset sales, asset joint ventures or various forms of equity," the company said.

Late in the afternoon B&B Power's investor relations team tried to stem the sell-off of the shares.

A "clarification" to the original statement was issued in which it dispelled the possible misintrepretation that the company needed to find an extra $3.4 billion in funds on top of its $3.1 billion of debt facilities.

However, this still failed to help, and B&B Power shares closed down 38.5c to $1.49.

The news of the possible equity raising or asset sell-off came amid jitters over $2.1 billion in debt the fund needs to refinance by August.

The debt, partly funded by the ANZ, Commonwealth Bank, BNP Paribas, Dexia and Societe Generale, stems from B&B Power's purchase last year of Alinta's power generation and retailing assets.

No mention was made of the possible capital raising at the Merrill Lynch Rising Stars Conference in Singapore last week, when the chief executive of B&B Power, Paul Simshauser, assured investors the company was confident of refinancing its debts.

Mr Simshauser was unavailable to talk to the Herald yesterday. But in a statement he said he was "very pleased with the strong support we have received from a wide range of banks".

"We are looking forward to the time when the focus will move away from our financing requirements to the strong industry dynamics in which B&B Power's assets operate and the related long-term growth prospects for B&B Power security-holders."

Yet the possible sale of some assets to fund the construction of five gas-fired power stations is unlikely to go down well. Nor is a $300 million capital raising or hybrid security issue, given shares in the company have more than halved in the past year.

Some investors said yesterday's sell-off was an over-reaction.

"My gut feeling is that people are worrying a little unduly," said the managing director of Argo Investments, Rob Paterson, who holds a position in the stock.

"Obviously anything to do with refinancing or debt at the moment has the killer blow."