B&B selling wind, but a buyer too

Sydney Morning Herald
Wednesday 2/7/2008 Page: 27

Babcock and Brown's dedicated wind power fund, BBW, yesterday snapped up another four wind farms in Germany, just as it is preparing to offload its entire European energy business to help boost its value. The latest purchases are part of a long-running deal BBW has with one of its two major wind farm developers. The fund emphasised yesterday that the arrangement allowed it to buy the new assets at lower prices than they would normally fetch.

BBW has put its existing portfolio of wind farms up for sale in a move to try to underpin its market capitalisation on the sharemarket - which is currently significantly lower than the value of the assets on its books. Some of the renewable energy facilities are co-owned by the parent, Babcock and Brown, which is hoping the forthcoming disposals will eventually have the same effect on its share price as it does on its BBW offshoot.

Both companies have been hit hard by the impact of the global credit crisis on their respective debt positions, with B&B having just this week eased the pressure on its share price by negotiating a more relaxed loan agreement with its banking syndicate. Under the deal the group's 25 banks removed a sharemarket valuation trigger as part of a refinancing of a $2.8 billion debt facility. Previously the banks could review the loan terms if B&B's stock fell below $7.50 a share or its sharemarket capitalisation fell below $2.5 billion - a point reached three weeks ago.

In return, B&B will pay higher interest and reduce its borrowing needs to $2.4 billion, as well as raising $400 million from asset sales. Much of that money will come from the wind farms, which constitute a significant part of BBW's European business.

The current sale program would see BBW exit what has been one of three key geographical areas for the fund: the US, Australia and continental Europe. But it still has wind farms coming through in Germany from developers Gamesa and Plainbeck under supply arrangements signed over the past three years, which will allow BBW to rebuild a large chunk of its European operations at one stroke.

Yesterday's deal saw BBW take on for an undisclosed sum nearly 20 megawatts of wind farms at Coswig, Eschweiler, Sonnenberg and Calau. BBW said it had funded the four purchases from existing financial resources. BBW's share price rose lc to $1.66 on the news, while the parent dropped 28c to $7.22, with some investors selling out on the rally that followed Monday's announcement of the new banking terms.