Babcock & Brown has raised $91 million in cash to please its nervous bankers by selling 100% of the ordinary shares in Victoria’s new $1.1 billion Royal Children’s Hospital, the state’s biggest ever public private partnership.

The Age’s Eli Greenblat broke the interesting story under the headline “Credit squeeze hits Children’s Hospital” today but Babcock itself hasn’t seen fit to announce the deal. Asked if it made a profit, spinner Kelly Hibbins replied that it wasn’t material.

As usual with the financial engineers, the much-needed sale was done to an associated listed fund it controls, in this case the Guernsey-registered and London-listed Babcock & Brown Public Partnerships.

Check out BBPP’s announcement. Interestingly, it is the only listed Babcock vehicle which has held firm over the past year, which suggests that complex PPPs with governments are highly profitable.

774 ABC Melbourne’s Jon Faine asked Victorian Premier John Brumby this morning about the appropriateness of the Royal Children’s Hospital being owned by a Guernsey-registered vehicle.

Brumby dismissed the question by saying it was simply an example of changes to a share register, although we are talking a 100% sale here. Babcock says the government was aware of the planned sale.

Brumby insisted all the contracts were tight and encouraged listeners to drop down to Flemington Rd to look at the Bovis Lend Lease construction team working away on what he claimed would be Australia’s best children’s hospital.

The Herald Sun first broke the story about the RCH finances on March 25 with a page three lead headlined “RCH builder’s finances under cloud” after New York-based FGIC, the insurer of the $1 billion bonds on issue, had its credit rating downgraded.

Everest Babcock & Brown, the listed $2.6 billion hedge fund which is 28% owned by Babcock and has CEO Phil Green sitting on the board, has invested more than $20 million in these bonds, so the RCH finances became a major feature of the recent EBB AGM.

The ensuing debate can be heard here.

However, it gets a lot more intriguing when you consider Michael Pascoe’s recent interview with EBB CEO Jeremy Reid, who revealed that it had $432 million on loan to various parts of the Babcock empire, which generate “mid to high teens” returns.

Given that the EGG AGM left the impression there were only two small exposures, this came as a quite a shock.

But what about Victorian taxpayers who are seemingly financing a new hospital at ridiculously expensive interest rates? Wouldn’t it have been a whole lot simpler to just raise state debt to pay Bovis Lend Lease to build the new hospital?

Too often, these PPPs are simply about shifting public debt off the balance sheet and taxpayers end up paying a lot more in the long run.

*Check out this Babcock package including a full list of all its PPPs around the world.