Will Babcock & Brown go down the drain?
June 16th 2008 11:14
What is happening with Babcock and Brown is that, for various reasons including a probable short selling squeeze, its share price fell from the heights of $34.78 to $ 5.20. As a result its capitalisation is near $2.5 billion which, in accordance with conditions from a consortium of 25 banks that financed B&B, will trigger some action from these even though it’s not clear what they will do. But ultimately, they could liquidate B&B.
You might ask what is Babcock and Brown? It is an investment company listed in 2004 in the ASX whose assets are primarily infrastructure items such as freeways, water companies, airports and such, much on the style of Macquarie Group which seems to have inspired it. Some of B&B’s funds are: B&B Infrastructure, B&B Power, B&B Wind Partners and B&B Residential Land Partners.
B&B’s return on equity for 2007 was 28.8 per cent and its earnings per share 172.0 cents. Yet, only a small percentage of its revenue, $25 million out of $4 billion, comes from outside sources. The most of it comes from charging management and other fees to the funds under it.
B&B’s major drawback, apart from the very complicated structure it has, is its enormous debt, a problem recently revealed by other companies such as Westpoint, MFS, Centro and ABC Learning Centres. The period up to mid-August 2007 was one of very easy and cheap credit and some business feasted on it, one would say, irresponsibly. For these listed here, indigestion seems to be their current problem.
As at December 2007, B&B had $13 billion in total liabilities and $1.8 billion in equity. If the consortium of banks demands the fire-sale of assets to provide collateral, B&B might collapse and shareholders might get nothing for their shares. Let’s wait and see.
You might ask what is Babcock and Brown? It is an investment company listed in 2004 in the ASX whose assets are primarily infrastructure items such as freeways, water companies, airports and such, much on the style of Macquarie Group which seems to have inspired it. Some of B&B’s funds are: B&B Infrastructure, B&B Power, B&B Wind Partners and B&B Residential Land Partners.
B&B’s return on equity for 2007 was 28.8 per cent and its earnings per share 172.0 cents. Yet, only a small percentage of its revenue, $25 million out of $4 billion, comes from outside sources. The most of it comes from charging management and other fees to the funds under it.
B&B’s major drawback, apart from the very complicated structure it has, is its enormous debt, a problem recently revealed by other companies such as Westpoint, MFS, Centro and ABC Learning Centres. The period up to mid-August 2007 was one of very easy and cheap credit and some business feasted on it, one would say, irresponsibly. For these listed here, indigestion seems to be their current problem.
As at December 2007, B&B had $13 billion in total liabilities and $1.8 billion in equity. If the consortium of banks demands the fire-sale of assets to provide collateral, B&B might collapse and shareholders might get nothing for their shares. Let’s wait and see.
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