Surprise, surprise, investment bank, Babcock and Brown was all announcements yesterday, correcting what it saw as erroneous reports that it was in default: it isn’t; suggesting that it is confident of getting buy orders for a couple of billion of wind assets on its books, and strongly suggesting that it will survive after talking to its banks.
The bank and CEO, Phil Green said that the discussions with the banks were nothing more than a review and he promised all sorts of other things which have just come to mind.
Such as; independent chairmen for some of its listed funds, a review of these funds by external advisers and cutting the bank back to so-called "core activities".
Seeing its core activity is to make money, what will change? It is supposed to take management and deal fees from finding, financing and selling assets to investors. It is not a market trader, broker, fund manager or adviser like Macquarie Bank. It has no other ‘core activity’. If it gets rid of some of these activities, how will it make money in the future?
The statement was issued before trading opened yesterday: the shares moved up from Friday’s close of $5.25, hit a low of $5.14, and a day’s high of $5.82, and then fell back to finish unchanged on the day.
A fair bit of trading for no gain whatsoever. But at least the bank and management can argue that the situation has stabilised and there was no repeat of any of last week’s sharp and worrying falls. But the way the shares eased in afternoon trading says a lot about how unconvinced the market remains.
For all intents and purposes the bank’s fate is now up to its group of 25 banks and their managers: some won’t want to do anything too quickly because of the size of their exposures and their exposures to the likes of Centro, MFS or Allco.
Babcock and Brown Power, the troubled listed electricity and energy fund, rose 2c to 73c, which is also something of an improvement on last week’s plunge.
The question has tube asked why didn’t Babcock and Brown reveal some of these moves weeks ago when there was a residue of confidence in the bank and management?
So we will now hear a lot about plans to accelerate the strategic review of its listed managed funds by external advisors and how the bank plans to narrow its investment focus to these “core activities”.
Babcock said it would “immediately recommend” the appointment of independent chairmen to four of its managed listed funds – B&B Infrastructure, B&B Power, B&B Wind Partners and B&B Residential Land Partners. Where it will find independent chairmen in this sort of situation, and who would put their hands up to do such a tough job was unclear yesterday.
“We will move as quickly as possible to restore investor confidence in a decisive yet orderly manner,” chief executive Phil Green said in the statement to the ASX.
He also said employees were “strongly aligned and committed” to the group, which has received “significant levels” of support from its partners globally.
The review of its $2.8 billion corporate debt facility with its banks will involve four months of consultation during which time Babcock would operate as usual.
A decision on whether a review would take place “may take some time in line with normal banking syndicate processes”, Babcock said in the statement.
Babcock also said the move by ratings agency S&P to downgrade Babcock & Brown to BB-plus last Friday was consistent with S&P’s move to downgrade other financial stocks around the world.
"The change in S&P rating does not constitute a review event or event default, or otherwise entitle any lender to require a prepayment of any financing facility within the Babcock & Brown group,” said Babcock.
So the statement indicated that it is confident of receiving those buy orders for its European wind power assets this week ahead of their expected sale in the September quarter of this year.
The bank and management are facing pressure to sell these European wind farms to restore investors’ confidence by raising cash and profits.
Babcock and Brown needs to assure the market that it can find upwards of $635 million to help Babcock and Brown Power to convince the market that it can finish refinancing its debt and cash needs for the next year or so.
No dough might mean no show for BBP, so far as investors in the power group are concerned.
The wind power assets include the Enersis business in Portugal which could bring as much as $2.5 billion, according to analysts.
A sale would help restore some confidence in the bank and push the share price back above $7.50. If it remains under $7.50 at the end of the four month review, the banks have the right to demand early repayment or they can force BNB to sell assets to raise cash.
"Babcock & Brown will continue the asset recycling and freeing up of capital that has previously been outlined to the market – de-leveraging our balance sheet and, further, will move to narrow our investment focus to core activities including development and co-investment," Mr Green said in yesterday’s statement.
But it will be a question of time, timing and a case of what then, if the bank succeeds in staving off the doomsayers and short sellers. (See the full statement below).
