B&b Says Banks Are On Side

Sydney Morning Herald

Thursday June 26, 2008

Danny John

BABCOCK & BROWN is rapidly shifting its capital needs from volatile equity markets, which have brought low its share price and those of its quoted satellites, to the unlisted funds sector.

B&B said yesterday that its syndicate of 25 banks was providing "excellent support" over its debt woes, a sign that the troubled investment company may yet persuade its lenders not to trigger a formal review of its recently agreed refinancing package.

Talks were triggered almost a fortnight ago when B&B's market value breached a $2.5 billion capitalisation floor after a sudden 28 per cent drop in its share price.

The group's bankers had inserted the stockmarket valuation as a key covenant in a new agreement to refinance a $2.8 billion debt facility that B&B signed up for three months ago.

Since then, B&B's overall value has plummeted, falling as low as $1.75 billion on June 13. A mini-recovery at the start of last week stopped amid uncertainty surrounding talks with its bankers; the share price dropped back from $6.88 to $5.80 two days ago.

Yesterday's optimistic statement to an industry conference run by the investment bank UBS helped lift the stock 51c to $6.31. But that still leaves B&B $400 million adrift of the capitalisation requirement above which it must stay over the next four months if the banks are to be satisfied that the group's problems will be short-lived.

B&B said in its presentation that it hoped to be able to brief investors in the next week or two about the state of play with its lenders - once the banks had reached their individual verdicts.

"The discussions with the corporate facility banks regarding the review event are progressing well, with excellent support from the banking syndicate," B&B's chief financial officer, Michael Larkin, told the conference.

Nonetheless, the talks have started to seep into the group's estimates of its likely profit result for this financial year.

While it again confirmed it was on target for net earnings of at least $750 million - 15 per cent ahead of last year - B&B indicated the forecast was partly dependent on the negotiations.

"The guidance is subject to the resolution and impact of current discussions around our corporate debt facilities, market conditions, and outcomes of the 2008 asset sale program," it said.

In the meantime, B&B is hoping to use the money it has raised from long-term backers through the unlisted funds market to underpin its plan to buy further assets and develop those it owns.

This will alleviate the need to raise new equity on the stockmarket and reduce the pressure on its own balance sheet to come up with the necessary cash.

This fits in with the group's forced shift away from its debt-funded listed asset management model, such as the group's infrastructure and power generation funds, whose share prices have tanked as a consequence of the global credit crisis.

© 2008 Sydney Morning Herald

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