B&b Ends Week 53% Down

The Age

Saturday June 14, 2008

Vanessa Burrow, Markets Reporter, With Michelle Grattan

THE market was flooded with Babcock & Brown shares as Australia's second-biggest investment bank set a date to meet its bankers, amid concerns about its ongoing viability.

The shares fell as low as $4.70 and B&B's market capitalisation plunged to just $1.75 billion, potentially triggering a review of its $2.8 billion debt facility.

The announcement that B&B had led a consortium of investors in the $7.5 billion purchase of one of Europe's leading train companies did nothing to improve matters.

B&B chief executive Phil Green said the purchase of Angel Trains was one of the largest acquisitions in Europe this year.

But B&B's shares closed 24% lower, at $5.25, on unprecedented volume. The company's value has fallen by $1.42 billion, or 53%, in just two days.

Analysts said B&B, which has 10 Australian-listed subsidiaries, had lost investors' confidence. Most analysts have drastically reduced their share price forecasts.

CommSec equities economist Savanth Sebastian said, in a fear-driven market, B&B's vulnerability was spooking investors.

"I think the concern at the moment is certainly for the financial sector, in particular the other key investment bank, Macquarie Group," he said.

Macquarie Group lost $1.52, or 3%, to $49.17. It was the first time the shares had closed below $50 in almost three months.

Mr Sebastian said there were also concerns Australia's Big Four banks, which provide funding to B&B, along with 21 other banks, might suffer losses if the investment bank failed.

A B&B spokeswoman said a meeting would be held next week. Only then would the company know whether its lenders would invoke a four-month review of its debt facility.

While it was impossible to say whether short-selling, or hedge funds were responsible for the dramatic share price slump, there did appear to be "irrational" selling, she said.

Citi analyst Mike Younger, who cut his rating on B&B late last month, said poor communication had caused a large part of the company's problems.

There had been a "string of poorly managed and received news flow from the group and its satellites over the past six months," he wrote.

The latest example was the "prolonged refinancing" of Babcock & Brown Power (BBP), which still must arrange a $360 million corporate debt facility, on top of the $2.7 billion it has finally secured.

The shares have sunk from a 12-month high of $3.55 to just 71?. UBS analyst David Leitch said "fear, uncertainty and doubt" had tainted BBP. "But its most fundamental problem is that its balance sheet is screwed," he said. However, ABN Amro analyst John Heagerty said it appeared some were deliberately undermining B&B's share price, using the investment bank's weakness against it.

"The sizeable falls in B&B's share price over the past few days indicate (the company) is being aggressively shorted by hedge funds aware of the market capitalisation review event," he said.

Short-sellers have also been blamed for falls in companies including Allco Finance Group and ABC Learning, companies that were operating with high debt levels.

Acting Treasurer Chris Bowen said there was no doubt the fallout from the subprime credit crisis was causing continued volatility in financial markets. "Australia is not immune from the problems facing global credit markets," he said. ' -- With MICHELLE GRATTAN

HORROR WEEK

Babcock & Brown DOWN 53%

B&B Infrastructure DOWN 31%

B&B Japan Property Trust DOWN 18%

B&B Wind Partners DOWN 12%

B&B Capital Ltd DOWN 27%

Everest B&B Alternative Investment Trust DOWN 2%

Everest B&B Ltd DOWN 16%

B&B Resident'l Land Partners DOWN 16%

B&B Power DOWN 31%

B&B Communities DOWN 10%

B&B Environmental Investments - suspended

SOURCE: BLOOMBERG

© 2008 The Age

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