Windfall raises hope for B&B

Sydney Morning Herald
Thursday 19/6/2008 Page: 27

Babcock and Brown may get as much as $US3 billion ($3.2 billion) for its European wind power assets, helping it to reduce a debt burden that triggered a 50 per cent slump in its market value.

First round offers for the energy projects of Babcock and Brown's Wind Partners fund were due on June 16, said three people with knowledge of the plan. The Spanish utility Union Fenosa is understood to be among the companies and infrastructure funds that submitted bids.

Union Fenosa was following the process as part of its strategy to expand in renewable energy at home and abroad. Another Spanish company, Iberdrola SA, is also interested, said a spokeswoman for the company in Madrid yesterday. RWE, Germany's second largest utility, may also be in the market. An RWE spokesman, Konrad Boecker, in Essen, declined to comment last night on whether the company would bid.

B&B shares jumped 16 per cent yesterday on optimism that a sale might help satisfy bankers that the company and its funds can cut a combined debt that Credit Suisse Group estimates at $46 billion. Its bankers could force early repayment of $2.8 billion of Babcock's debt if its market value stays at current levels.

B&B shares rose 95c to close at $6.88, leaving its market value below the $2.5 billion level that would give the banks the right to recall the $2.8 billion early and force asset sales at the end of a four-month review period. Babcock Wind, 9 per cent owned by the troubled company, gained 0.6 per cent to $1.65.

'As long as Babcock is taking proactive action to reduce debt it's heading in the right direction," said White Funds Management's Angus Gluskie. "The company can survive, and investors will have to ride this out." Jonathan Mott, an analyst at UBS, estimated the sale of the European wind assets would have a "significant" impact on B&B's business, adding up to $300 million to net profit this year, according to a June 13 note.

B&B's chief executive, Phil Green, joins rivals including Allco Finance Group in struggling to manage debt and selling assets since the seizure on global credit markets. Allco, down 93 per cent in Sydney trading this year, said on Tuesday it would raise $165 million from the sale of California's largest wind power project to help repay $935 million of debt.

Babcock, Australia's second largest securities firm behind Macquarie Capital Group, said on Monday it expected first bids this week, and was confident it would sell the European wind assets by the third quarter of this year.

Babcock Wind said in February it might sell ventures in Europe, including the Enersis business in Portugal, to benefit from increased valuations for projects not reflected in its share price in Australia. The company owns about 830 megawatts of wind energy generation capacity in Europe. It has hired Deutsche Bank and JPMorgan Chase to manage the sale.