Eircom owner shares down 34% on €5.42bn debt fears

BABCOCK & BROWN:SHARES IN Babcock & Brown, the Australian investment bank that ultimately controls Eircom, lost a third of their value on the Sydney market as investors questioned whether it could repay Aus$9.6 billion (€5.42 billion) of debt.

As the stock came under renewed pressure, Babcock found itself denying that it was facing the same issues as insolvent US investment bank Lehman Brothers or Merrill Lynch, which is being sold to Bank of America.

Kelly Hibbins, the spokeswoman for Babcock in Sydney, said the bank does not trade financial debt instruments or have them on its balance sheet, one of the causes of problems at Lehman and Merrill Lynch. "People assume that we are in the same boat as Lehman and Merrill, but we are not," Ms Hibbins said. "Obviously there are concerns about counterparty risk, but we don't have any exposure to Lehman."

Babcock owns 8 per cent of Babcock & Brown Capital (BCM), a satellite investment fund which has a majority stake in Eircom. Its stewardship of Eircom is set to end in in light of a review of its management arrangement with BCM.

"Obviously BCM is an entirely separate company with its own management, its own balance sheet, its own shareholders. The share price situation at Babcock & Brown is of little or no relevance whatsoever to BCM," said a Babcock spokesman in London.

While some sources have speculated that the likely termination of the bank's management arrangement with BCM could lead to a sale of Eircom, turmoil in international markets means no such process is likely in the short-term.

Babcock shares finished down 34 per cent at the close of trade, cutting its market value to Aus$364 million from Aus$8.9 billion at the start of the year. The stock has tumbled 96 per cent in 2008, trailing only Fannie Mae and Freddie Mac among the MSCI World Index's biggest losers.

The seizure of global credit markets has cut Babcock's access to cheap loans as it seeks to pay back debts built up acquiring ports, power stations and airports. Last month it was forced to sell assets at a loss to reduce borrowings. - (Additional reporting: Bloomberg)