Australian groups hit further on debt repayment fears

BABCOCK PROBLEMS:SHARES IN Macquarie Group and Babcock Brown (BB) were further pummelled yesterday amid rising investor concern that the global credit crisis would affect their ability to repay debt.

Macquarie, Australia’s biggest investment bank, which yesterday had its Dublin office opened by Taoiseach Brian Cowen, sank more than 23 per cent to 26.05 Australian dollars (€14.57), down about 65 per cent on the year.

BB, the infrastructure investor controlling Eircom, shed 17 per cent to a record low of A$0.76.

Kevin Rudd, Australia’s prime minister, said the country’s institutions were in a sound position.

“There is a world of difference between the circumstances surrounding Australia’s financial institutions and those which face financial institutions abroad,” he said.

“We’re not immune to those difficulties, but we are in a strong position to see Australia through.”

His words failed to reassure investors, and shares in the nation’s leading five retail banks also fell, with National Australia Bank heading the list with a drop of 5.3 per cent to A$19.60.

Macquarie and BB are being more severely punished by investors for having business models that rely on higher levels of debt.

Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors in Sydney, said: “Hedge funds are targeting vulnerable parts of the market – in particular heavily indebted companies – and that’s why we have seen our investment banks come under pressure in recent days.”

Shares in Macquarie were further hit by Standard Poor’s, which downgraded Macquarie’s credit outlook on Wednesday because of grim global markets – though the ratings agency added that Macquarie’s earnings were likely to remain strong.

Macquarie did not answer a request for comment yesterday, but, in a filing to the Australian Securities Exchange, said it knew of no reason for the share price fall. The group said it was capitalised with liquid assets of more than A$20 billion as of June 30th, twice the level of a year ago.

BB said its low share price was not an indication of its fundamentals: “We do not have financial paper on our balance sheet, like Lehman for example.” – (Financial Times service)