The Babcock and Brown financial engineering empire continues to stagger towards an uncertain future with its power offshoot revealing write-downs of more than $450 million on its assets, a move that sent the shares in both groups to new record lows.
Babcock and Brown’s share price sank to a new all time low of $3.91 this morning, before recovering slightly to $4.25 just after noon. That was off 20 cents or 4.5%.
Babcock and Brown Power (BBP), which revealed the write-downs in a statement to the ASX this morning, saw the price of its securities plunge to just 20.5 cents. That was down more than 50%. They then recovered to 29.5 cents just after noon: a loss of 13 cents in morning trade, or a huge 30.5%.
While the write-down hit the power arm, concerns about the impact of that loss and the forthcoming interim financial results on Thursday were behind the renewed bout of selling in the parent this morning.
The power fund, which is managed by Babcock & Brown also confirmed its 2007-08 guidance of achieving earnings before interest, tax, depreciation and amortisation of between $330 million and $340 million. But that did not include the $452 million in charges on the value of its Altina power assets and the loss of $42 million on the sale of the Tamar power project in Tasmania to the state government.
The news of the earnings guidance statement was forced out of the company by an ASX query about the big price fall late last week of 34.5%. BBP said it would take a $410 million impairment charge associated with the Western Australian power utility Alinta, acquired by B&B and associated funds last year. It also said had it had extended a $120 million debt facility to March 31, 2009.
It is the second bout of weakness in BBP securities since May-June when it announced it would have to consider selling assets to plug a $300 million funding shortfall. So it started disposing assets: the Uranquinty and Ecogen businesses were sold at book value, but the Tamar sale was well below book and will inflict a nasty wound in BBP’s balance sheet at a time when it doesn’t need to bleed.
The power company boasted that the sale of Tamar, Uranquinty and Ecogen had cut its debt by $770 million, but debt will still total a very large $3.7 billion, with an average interest rate of 8.8%. After saying in June that it would cut its 2008 second half distribution, the company changed that today to merely say that its distribution policy remained “under review”, given that various debt facilities required repayment before distribution payments could be made. That’s telling security holders not to expect very much, if anything, by way of a distribution this half.
The company said today that more asset sales may also be undertaken and that it had hired UBS as a strategic adviser.