A small group of foreign creditors took control of Eircom shareholder Babcock & Brown today after voting down a rescue plan and putting themselves in a position to fight for a share of $9 billion in group assets.
A meeting of New Zealand bondholders rejected the plan, which would have paid them just one tenth of a cent in every dollar, in a move that forced the Australian investment firm to appoint administrators, who are obliged to run the firm on behalf of the bondholders.
The vote amounted to a demand for group's listed parent company to repay about $117 million in bonds, pushing it into technical insolvency.
But Babcock & Brown pointed out that it was now a near-empty shell and that its bondholders had no charge over the group's physical assets, which were held in a private unlisted unit.
Those assets, last valued at A$14 billion ($9.1 billion) at end-June 2008 and which include toll roads, ports, real estate and power stations worldwide, are held by Babcock & Brown International (BBI).
"The (BBI) management team will focus on ensuring that the value of assets and business platforms is preserved during this process and all assets and businesses continue to be managed appropriately," Babcock & Brown Ltd said in a statement.
The New Zealand bondholders' move now sets up a potential struggle between the parent firm's administrator and BBI which is effectively under the sway of the group's major banks. The bank's are together owed about A$3 billion in debt maturing by 2011.
Like the group's assets, BBI also holds most of the debt.
David Lombe, a partner at newly appointed administrator Deloitte Corporate Reorganisation Group, said the parent firm had less than about A$10 million worth of assets and declined to comment on any options for accessing the capital of BBI.
But he pointed out that the parent firm was still the legal controlling shareholder of BBI, adding: "I would note they do have an interest as a shareholder in B&B International Pty Ltd."
The Babcock & Brown group was once one of Australia's biggest firms worth around $6.5 billion. Its market value has plunged to penny-stock status after the global credit crunch hit its debt-funded expansion model.
The major banks are backing the group's rescue plan, which involve asset sales and a possible debt-for-equity swap.
The major lenders include local banks ANZ, Westpac, Commonwealth Bank and National Australia Bank and foreign banks including Barclays, Dexia, Banco Espirito Santo, BNP Paribas, Citigroup and DBS Bank.
Babcock has been negotiating for months with its bankers over some loan covenants, with the situation becoming critical in November last year. Finally, last month, it agreed a debt restructuring deal and rescue plan, but this needed approval of both the New Zealand and Australian bondholders.
Australian bondholders have approved the plan, but the New Zealand bondholders reacted angrily to it, describing it as unfairly favouring the major banks over themselves.
Babcock & Brown owns about 8 per cent of Babbcock Brown Capital Management (BCM) a listed satellite fund which is the majority shareholder in Eircom.
Last month, the investment firm wrote off €720 million of the value of their investment in Eircom due to a deterioration in the outlook and the telecoms firm’s increasing pension deficit.
Babcock & Brown admitted it overpaid for the business when they bought it for €2.36 billion less than three years ago.
Additional reporting: Reuters