BBI 0.00% $3.98 babcock & brown infrastructure group

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    Debt shadows Babcock & Brown
    Email Print Normal font Large font AdvertisementScott Rochfort
    March 6, 2008

    BABCOCK & Brown Infrastructure has fuelled market fears that it is struggling to manage its heavy debt load after saying it will sell some of an asset it bought less than three months ago.

    The Babcock & Brown spin-off's share price slumped to a five-year low yesterday after the company also announced the delay of a scrip-funded buy-out of the remaining 49 per cent stake that it does not own in the rail haulage operator WestNet.

    Shares in the port, rail and energy infrastructure vehicle slumped 9.5c to 96.5c, further illustrating the growing scepticism in the market surrounding listed infrastructure companies with heavy debt loads.

    BBI's slump was echoed by the further falls the share price in ports and rail group Asciano, which slumped to a new low of $3.39 yesterday. BBI's share price has more than halved since May.

    The company argued the delay of its WestNet purchase was good for shareholders because it would not have to proceed with an equity raising at a time when its shares were near all-time lows. It added it would "further strengthen" its balance sheet and liquidity.

    In a statement to the market, BBI said it planned to sell down its 32 per cent stake in the Natural Gas Pipe Line of America (NGPL) to 26 per cent.

    "A 26 per cent interest would still leave BBI as the single largest shareholder and ensure all current governance protections remain in place," the company said in a statement to the ASX.

    The move follows the once-highly acquisitive group saying in December that it would focus on consolidating its assets and organic growth.

    BBI's chief financial officer, Jonathon Sellar, expressed puzzlement at the market's punishment of his company's share price. Mr Sellar dismissed the debt concerns surrounding BBI, stressing its $9.5 billion of debt compared with its $15 billion of assets.

    Mr Sellar said BBI also have no debts that were leveraged to its market capitalisation, like the flailing financial group Allco Finance.

    The company's debt convenants are linked to its cash flows. Mr Sellar said BBI's heavy exposure to non-cyclical "regulated businesses" - particularly in the energy sector - meant the group's cash flows were secure.

    "The rising cost of debt can be passed on," he told the Herald, noting BBI's ability to pass on higher interest costs to the customers of its assets.

    Mr Sellar said yesterday's decision on WestNet and NGPL was more a result of the company not wanting to dilute its already sinking share price.

    Selling the NGPL stake means BBI will no longer need to proceed with two dividend reinvestment and a share purchase plan worth $200 million.

    The WestNet deal would require about $160 million of BBI shares being issued, or going by yesterday's closing share price, about 7 per cent of the group's market capitalisation.

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