Revamped BBW finds its second wind

Sydney Morning Herald
Monday 23/3/2009 Page: 19

THE listed wind energy offshoot of Babcock and Brown will focus its future operations in Australia and the US as it prepares to sever its final connections with its now-failed former parent.

The move to concentrate on just two markets - considered to be relatively "young" in the field of renewable energy - will see the soon-to-be renamed Babcock and Brown Wind Partners sell its remaining European windfarm and development rights in Germany and France over the next 12 to 18 months. It will cap a withdrawal from Europe that began last year with the double disposals of its portfolio of windfarms in Spain and its Enersis interests in Portugal.

Those sales in August and November generated a $250 million-plus profit from the Spanish assets and a $12 million loss on the Portuguese interests, which enabled BBW to pay down debt and bolster its cash reserves as part of the gradual untangling of its links with B&B.

Spun off as an ASX-quoted managed fund from the B&B empire in 2005, BBW provided an important source of revenue for its one-time parent through management and performance fees. It also functioned as a depository for the group to house burgeoning windfarm assets and development rights that it had acquired and held on its own balance sheet.

But with investors raising increased concerns about the independence of BBW and B&B's hold on the fund through a restrictive management rights agreement, the wind energy operator began standing up to the parent in November 2007 when it refused to acquire certain assets offered to it. It also became one of the first B&B offshoots to seek and subsequently secure control over its own management - a deal which saw it pay $40 million to B&B for the separation rights before the former sharemarket darling went into administration just over a week ago.

It has also terminated two framework agreements - the long-standing Gamesa and Plambeck deals - whereby it would take further European windfarm interests from B&B in preparation for its final pull-out from the highly competitive continental market. This is now dominated by local listed offshoots of three huge state owned utility companies.

However, BBW's chief executive, Miles George, insists that the fund is neither a distressed seller nor one that needs to dispose of the assets quickly, preferring to wait for a recovery in prices to firm before actively putting their on the market next year. ''If somebody made an attractive offer for their in the next 12 to 18 months we would probably sell them," he said.

BBW, which will ditch its current name for a completely new one in the next few weeks as part of its new-found independence, believes the buyback of its securities - trading at 84c - offers better short-term value in boosting its rate of return than investing in what it regards as a relatively mature market in Europe. The fund has found itself increasingly squeezed further by state-backed players which can access capital to expand at much cheaper rates than itself given the high cost of debt on international credit markets.

Both Australia, where BBW claims market leadership against one major challenger AGL Energy, and America,where it is ranked fourth, offer better long-term opportunities in terms of picking up existing or new windfarms and in particular the development rights to build future sites, according to Mr George.

Appointed the company's in-house managing director on January 1 as part of transfer of management rights from B&B, Mr George was previously BBW's managing director but was employed by the bigger group as part of the services it provided to the "baby Babcock". Having taken on a development team in Australia to target possible windfarm sites here, BBW is looking to do the same thing in the US.

Mr George hopes that the moves now being taken by the wind energy company will see a gradual revival in the presence of Australian institutional investors on its share register. Having had 50% of its stock owned by domestic fund managers at its IPO four years ago, that has since fallen to just 15% as B&B's all-embracing hold on the fund overshadowed its nascent desire for more independence and its different business model.

Unlike other B&B offshoots, BBW paid its distributions out of available cash flow, not debt. "There's always some luck involved in business, but a lot of the position we find ourselves in is ... due to actions we have taken over the last two years as well as some luck," Mr George said.