Fight to keep Babcock alive

Daily Telegraph
Tuesday 25/11/2008 Page: 44

LEADING Australian banks are trying to stitch together a rescue plan for Babcock and Brown as a group of German lenders to the troubled group agitate for a winding up of the company. B&B shares are due to resume trading on the ASX this morning, but uncertainty surrounding the group's ability to service its bulging bank debt is likely to result in the company seeking an extension to its current trading halt.

Yesterday, sources close to the company cast doubt on whether its scrip would trade again amid heightened concern that its lenders will pull the plug on the group. The depth of Babcock's woes are such that the company could be put in the hands of administrators before the end of the month. B&B bosses had emergency talks at the weekend with representatives of a 25-member banking syndicate to which the investment bank owes more than $3.1 billion.

It is understood that the Australian members of the syndicate NAB, Westpac, Commonwealth and ANZ are keen to find a way for the company to remain viable, but offshore lenders such as Germany's HypoVereinsBank (HVB) and West LB are losing confidence in the heavily leveraged group. Last week HVB took the extraordinary step of freezing B&B's ability to draw on $146 million of deposits it held with the Munich based bank. The HVB action prompted the trading halt and angered the local banks, which are collectively owed about $700 million.

"The talks are continuing between Babcock's advisers and the syndicate's representatives to see if there might be a way forward," a party close to the weekend talks said. "But I would say if Babcock doesn't get access to the cash at HypoVereinsBank, then they are probably history. On that basis, the outlook is grim." Westpac has the largest direct lending exposure to B&B, with more than $200 million at risk.

A collapse of B&B would have far-reaching impact on all of the banks' balance sheets and the Australian economy as a whole. The local banks would have to book losses on loans made to a string of B&B satellites if the parent group were to fail. "It would be a messy event for the Aussie banks and something they would no doubt prefer to avoid," one analyst said.