Babcock Brown shares plunge 28% in one day

THE AUSTRALIAN investment bank that ultimately controls Eircom is facing a review of A$2.8 billion (€1.7 billion) in debt after a 28 per cent share price collapse in one day brought its market capitalisation to levels at which its banks can seek early repayment.

Babcock Brown, which orchestrated the takeover of Eircom in 2006 by a specialist investment fund, has seen its value drop by 75 per cent this year amid questions over the viability of its business model and investor worries about heavily-indebted companies.

The bank manages Babcock Brown Capital (BCM), a fund listed on the Australian securities market which has a controlling stake in Eircom, and it also has an 8 per cent shareholding in the fund.

The bank controls numerous other funds, with investments in power and energy transmission, wind power, public infrastructure, rail, aircraft and other asset classes. It initiated a review of these funds only a fortnight ago and apologised for the poor performance of their shares.

A sharp drop in the bank's own shares on the Australian stock exchange brought its market capitalisation yesterday to A$2.3 billion, below the A$2.5 billion that can trigger a four-month debt review by its banks.

They will have the right to demand early repayment of the loans if the market capitalisation is still below A$2.5 billion at the end of the review.

"Reaching the market capitalisation level does not in itself trigger any requirement to repay the debt or accelerate repayment of the debt," said Babcock Brown chief executive Phil Green, an executive director of BCM.

The prospect of a review by the Babcock Brown's lenders comes amid a buyback of 50 per cent of the shares in BCM, which early this year abandoned plans to make A$445 million in new investments following pressure from certain investors to return cash.

Eircom, which itself has debts of some €4.26 billion, is on the hunt for a new chairman after the unexpected resignation three days ago of its executive chairman Pierre Danon, who is leaving to take a new job in France.

Although BCM's takeover of Eircom in 2006 was its fourth change of ownership in only seven years, the fund has raised the possibility of selling the business to an incumbent European telecoms company in the medium term as an alternative to its strategy of seeking a return by splitting its retail and network units.

"It doesn't affect BCM from an Eircom perspective; it's a separate listed entity," a London-based Babcock Brown spokesman said of the possible review of the bank's debt. "Babcock Brown has a strong liquid position that was extended and expanded in April, and we have a strong asset sale programme in place. We're not making losses and we're not writing things off like other institutions."

The bank has claimed that its shares are the victim of "short-selling" by hedge funds.

In such cases, investors borrow stock in a company and sell it in the hope of buying it back at a lower price later before returning it to the original owner and receiving the difference as profit.