Company Doctors Called In For Ailing Allco Outfits

The Age

Tuesday March 11, 2008

Leon Gettler, Financial Services Reporter

VOLUNTARY administrators have been sent in to fix the problems confronting a significant shareholder of the debt-stricken Allco Finance Group, and Australia's second-largest investment bank has been forced to clean up its debt profile.

Voluntary administrators have been appointed to Allco Principal Investments, the private investment vehicle of several Allco executives.

API said Stephen James Parbery, Mark Julian Robinson and Christopher Clarke Hill of PBB were appointed administrators on Friday.

They will also be administrators of 15 API subsidiaries, including Allco HIT Holdings Pty Ltd, Allco Aviation Lease Surety Co Pty Ltd, Allco Principals Property Pty Ltd and Allco Principals Rail Pty Ltd.

This comes after National Australia Bank and Bank of Scotland last week called in big margin loans and moved to take possession of Allco shares.

Babcock & Brown was forced to fix up its debt exposure by liquidating $250 million of margin loans, part of a package of $631 million of short-term debt secured against securities in its specialist funds.

But the announcement failed to reassure the market and its shares fell to $12.90, their lowest in more than three years, before closing at $13.80.

That was still 16? down on Friday's close, when the company's shares fell by 10%. On December 31, Babcock & Brown was trading at $27.15.

On Friday, the company was forced to quash speculation that it could be forced to sell some of its holdings in its managed funds. Babcock & Brown used its cash reserves to pay off the $250 million. It has refinanced the remaining $381 million as part of a long-term arrangement.

By removing the debt from the securities, Babcock & Brown has in effect secured it against other, as yet undisclosed, assets on its balance sheet.

It means the dollar value of its gearing will increase. But the bank says overall gearing will reduce as a result of increased retained earnings and the $250 million repayment of short-term margin facilities.

Babcock & Brown chief executive Phil Green said the latest development showed that Babcock & Brown could raise money any time it wanted.

Babcock & Brown last week pounced on Allco Finance Group's stakes in three Rubicon Group listed property trusts that control $5 billion of overseas real estate. It bought the shares at bargain basement prices.

Analysts said the stakes might be risky because Rubicon had big debts that matured this year. But they believed Babcock & Brown's raid made strategic sense as it would give the investment bank a seat at the table if Rubicon ran into more trouble.

© 2008 The Age

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