BNB babcock & brown limited

babcock hit as asset values slide

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    Babcock hit as asset values slide
    Clancy Yeates
    November 13, 2008

    THE troubled investment bank Babcock & Brown conceded yesterday it may face more asset write-downs, which could trigger a breach of its debt covenants.

    As its share price plunged, the group would not rule out the possibility it would have to write down assets it holds as security against a $2.8 billion revolving credit facility.

    The concession came in response to a price query from the Australian Stock Exchange after Babcock shares fell 45 per cent from 97c on Monday to 53c.

    Market fears about the group have flared amid speculation that sliding asset values would cause Babcock to breach an asset-to-debt ratio requirement, forcing a renegotiation of its credit conditions with its syndicate of lenders.

    The company noted that it had incurred abnormal asset impairment charges in this year's interim result - which came to $386 million - and said there may be further material asset charges in the full-year result.

    "We will not know the extent of any such charges until the impairment process is finalised in the context of the 31 December year-end results," it said. "Recognising this uncertainty we have embarked on a consultative process with our banking syndicate."

    Last week's collapse of the heavily geared Allco Finance Group triggered fears about Babcock's ability to retain the confidence of its lenders, although it is not in a forced program of asset sales as was Allco.

    Concern about the group's ability to sell assets also came to the fore after the ratings agency Standard & Poor's downgraded its rating from BB to BB minus on Monday. One of the main reasons for S&P's decision was that Babcock's asset sales were progressing more slowly than expected.

    The response to the ASX query allayed some investor fears and Babcock shares gained 5 per cent to close at 63.5c.
    The Sydney Morning Herald
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