May 23rd - The Australian
Babcock shares battered on fears of $300m shortfall in capital
Adele Ferguson | May 23, 2008
BABCOCK & Brown and its satellite Babcock & Brown Power were slaughtered on the market yesterday on fears that the power offshoot is facing a $300 million capital shortfall and will be forced to go to the market with a deeply discounted rights issue to fund capital commitments due in the next month.
Babcock & Brown Power dived 20 per cent, to $1.49, and Babcock & Brown fell almost 8 per cent, to $13.28, on speculation from debt markets that banks had cut the loan sought by BBP from $3.1 billion to $2.7 billion and the remaining $400 million would be funded by Babcock & Brown.
Both companies were unavailable for comment, heightening concerns about the lack of transparency, accountability and opacity of the financial accounts.
In a statement released yesterday, BBP said it expected to secure funding for a debt refinancing package by early next month. It has been trying to secure a deal since last year.
It said it was trying to finalise a $3.1 billion debt refinancing package but it had capital commitments of $3.4 billion, suggesting a $300 million shortfall.
These capital commitments are believed to be due within the next month, which would make
it difficult to sell assets in time to pay the bills. Possible assets BBP could sell include the Alinta retail business, which is worth about $1 billion.
But if it needs the money quickly, BBP would be forced to go to shareholders and make a rights issue at a deep discount to the share price.
According to a note written by Goldman Sachs JBWere yesterday, in terms of an equity raising at less than $1.50, the yield on the new securities would be more than 17 per cent using the current 2008 dividend per share of 26.1c.
"This is not sustainable. As such, BBP either needs to sell assets or stop paying distributions," Goldman said.
The additional capital expenditure required by BBP is associated with assets including the Tamar Valley gas-fired plant, the Newman expansion and buying minority interests in Braemar and Uranquinty.
The news sent the market into a frenzy because the company did not hold an investor conference to explain what it all meant for Babcock & Brown or Babcock & Brown Power. Its chief executive Paul Simshauser was also unavailable for comment.
In a statement, the company said there were a number of options available to fund the additional capital commitments, including debt, asset sales, asset joint ventures or various forms of equity.
More than $2 billion of the debt refinancing stems from its acquisition of Alinta's power generation and power generation and retail energy assets.
The bankers are believed to include ANZ, Suncorp, Commonwealth, BNP Paribas and NAB.
In a note to clients yesterday, Goldman Sachs JBWere said: "This is disappointing and a surprise."
Any party wanting to bid for BBP would have to resolve the management agreements with Babcock & Brown. The management fee is 1 per cent of market capitalisation or $11 million.
One fund manager said the fact that Babcock & Brown has bailed them out to the tune of $400 million, yet they still need money, went to the heart of the problems with infrastructure funds.
"They have lost a lot of credibility the way they handled this today," he said.