B&b In Freefall As Woes Mount
Sydney Morning Herald
Thursday June 12, 2008
BABCOCK & Brown has lost more than $330 million this year from the value of its investments in the listed funds it manages, raising the prospect of significant write-downs that may threaten its profit forecast of $750 million.
The share price of Babcock & Brown was pushed down 90c, or 9 per cent, yesterday to $9.52, dropping through the $10 barrier for the first time since May 2005 and a far cry from a $34.63 peak in June last year.Babcock & Brown bore the brunt of investor uncertainty yesterday about the $2.7 billion refinancing of Babcock & Brown Power, which is due to emerge from a trading halt today.The sustained fall in Babcock & Brown's share price is also cutting its market capitalisation close to a $2.5 billion threshold that allows bankers to review their financing.Yesterday's 9 per cent fall carved more than $300 million off Babcock & Brown's market capitalisation to $3.14 billion. The fall occurred as the broader market continued to take fright at financial stocks after the US investment bank Lehman Brothers announced a shock $US2.8 billion ($2.95 billion) loss on Monday. A Herald analysis of Babcock & Brown's holdings in its 12 biggest listed investment funds shows the market value of its existing investment portfolio has fallen by $335 million since the start of the year.This includes steep falls in the value of its investments in funds including Babcock & Brown Power (down about $92 million), Everest Babcock & Brown (about $75 million), Babcock & Brown Infrastructure (about $73 million) and its Singaporean structured finance fund, (about $69 million).The analysis involved comparing the reported stakes held by Babcock & Brown on December 31 and calculating the impact of subsequent share price falls. The steep slump in its satellite funds has pushed the market value of these investments to about $670 million, 33 per cent below their $1 billion carrying value in Babcock & Brown's accounts.The increasing gap between Babcock & Brown's carrying value and the current market value puts pressure on the company's directors to write down the value of their investments if conditions do not improve. But this depends on whether they regard the assets as "impaired", or whether they think they will rebound. Sources within Babcock & Brown said much of the unit price volatility was based on refinancing issues, not on asset quality, and there was confidence that asset sales from the funds would prove the value of the underlying assets.The slump in infrastructure funds has occurred as investors shun highly-geared structures. The Herald analysis shows an impact on the book value of Babcock & Brown's funds greater than that previously reported by the firm. The chief executive, Phil Green, advised the annual meeting in May that its investments in funds were trading about $120 million below book value, as he announced a review of the listed infrastructure model."I think the current state of play is about $100 million in aggregate - market value below carrying value - maybe $120 million, in the funds," Mr Green said.He defended the value inside funds such as BBP and said likely write-downs had been taken into account in its profit forecast. B&B Power financing - Page 30Allco woes - Page 31
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