The astonishing Babcock & Brown collapse and humiliation continued apace today with the following share price moves by late morning, ranked according to percentage falls:
- B&B unsecured notes: down 31% to $38, suggesting the equity is worthless
- Babcock & Brown: down 28% to $4.95m, breaching $5 float price for first time
- B&B Power: down 26% to 66c, 74% loss on 2006 float price
- B&B Infrastructure: down 24% to 64.5c, equity now worth just $1.5 billion supporting $9 billion in debt.
- B&B Communities: down 19% to 32c
- B&B Capital: down 16% to $2.99
- B&B Japan: down 14% to 84.5c
- B&B Wind: down 11% to $1.37
- Everest Babcock & Brown: down 8% to 41.5c.
That’s a record low for nine Babcock vehicles representing the destruction of more than $1.5 billion in a morning. Wow!
And how did the mothership respond to this crisis? It announced the $7.5 billion acquisition of Angel Trains from the teetering Royal Bank of Scotland to become the biggest rail company in Europe.
Well, arranged rather than acquired as the Babcock equity is coming from its European equity trust. CEO Phil Green was defiantly hailing it a “landmark” deal.
“The completion of this transaction demonstrates our continued ability to originate, structure and close a uniquely complex deal.”
Not quite, Phil. It demonstrates that there was one last deal in the pipeline that has staggered over the line but it is game over from here on, even if the mothership has extracted $100 million-plus in fees on the transaction.
The media hasn’t quite cottoned onto the scale of this story as only Fairfax’s Michael West pointed out the sensitive infrastructure assets involved, which now includes Europe’s biggest rail business.
The whole world will be watching because never before has one house fallen over with $50 billion in debt saddled on top of a massive pile of ultra-sensitive infrastructure assets, including:
- Victoria’s $1.4 billion Royal Children’s Hospital redevelopment
- The controversial St Kilda triangle project in Melbourne
- Eircom, Ireland’s equivalent of Telstra which sits inside Babcock & Brown Capital.
- WA’s gas retailing monopoly
- Dozens of power stations and windfarms
- More than $1 billion worth of British ports
- $150m worth of NSW schools
- The transmission cable under San Francisco bay
- The giant Dalrymple Bay coal terminal in Mackay
We haven’t got the space to list about $80 billion worth of assets but there will be governments, investors and bankers around the world scrambling for their contracts to establish what on earth this all means.
A fire sale is coming with the jewel in the crown on the block first – the large portfolio of European windfarms.
UBS has today predicted the deal can secure $300 million in net profit whilst Merrill Lynch claims up to $550 million.
Even if Babcock survives with a blockbuster wind deal, it will not be able to raise capital in the future and the independent directors of the various funds should already be exploring a series of MFS-style divorces and name changes because the Babcock brand is dead.
And as for the parent company being able to provide Babcock & Brown Power with its missing $600 million, surely the market cap trigger yesterday will prevent that from happening.
That only leaves assets sales at the worst possible time given NSW is pushing ahead with power privatisation and the uncertainty surrounding the emissions trading means coal-fired plants are virtually unsaleable.
*Check out this special multi-media package on the Babcock implosion
I got lumped with some Babcock “preference shares” when they took over Alinta a year or so ago. The outfit seemed like a flakey cook up between a few Mosman corporate lawyers and some over enthusiastic commerce graduates then, and I wasnt that surprised when the complicated charade started to collapse this week. Fortunately I didnt have too many and managed to run to the phone quickly enough today to at least have something left. No doubt shortly much of the outfits funds will be frozen and suspended from trading but look ,once they start talking about MEETINGS WITH BANKS – forget it, thats aussie corporate code for “WELL AT LEAST I’VE CASHED OUT MY EQUITY”
Wow!
Babcock and Brown own the South Australian electricity assets right? NRG/Flinders partnership which is a funny money lease arrangement back to the GLC – General Lessor Corporation – a division of treasury tucked away but free from the prying eyes of the public or FOI legislation – hmmm, no mention lately in the Auditor Generals reports…but when we go back a bit we find this extraordinary fun bit, well actually not much fun if you are an employee of the coal mining operation where it seems the SA government agreed to a “Proclamation of Immunity” to ensure smooth sailing and profits ahead, after the cash exchange and funny money lease arrangements were made:
http://www.audit.sa.gov.au/99-00/etsa3/part1.htm
1.4.2 Leigh Creek Township Lease
The State has granted to the successful bidder a lease of the Leigh Creek Township as part of the disposal process for Flinders Power……
……..Whilst I understand, that significant consultation was undertaken with Leigh Creek Township residents in relation to the proposed lease arrangements and I note, that the vast majority of Leigh Creek Township residents are employed at the Leigh Creek coal mine, of specific concern to me are the provisions of the Proclamation of immunity from liability which was made pursuant to section 35 of the Electricity Corporations (Restructuring and Disposal) Act1999.
Under this Proclamation, the Generation Lessor Corporation and the Crown are both given immunity from any statutory, civil or criminal liability with respect to the Leigh Creek Township Lease including any liability for loss, damage, injury or death suffered by a person through any cause whatsoever while, or, as the result of being in the Leigh Creek Township.
For the State to seek to exempt itself from liability to the residents of Leigh Creek Township from its own negligent or criminal acts represents a failure by the State to act responsibly to protect the public interest. Accordingly, I believe consideration needs to be given to urgently obtaining legal advice as to the relevant construction to be placed on the Proclamation and, if necessary, amend the Proclamation so as to ensure that the legal rights of the citizens of Leigh Creek Township are no less vis-à-vis the Crown than other citizens of this State.
Is one to believe this is the first instance of the denial of constitutional rights at the contractual arrangement of a state government of Australia? If so, congratulations South Australia you have elevated your status back in time to the antics of ye old swashbuckling pirate of the high seas Chris Columbos.:
Proclamation of Immunity applied thus same to lawless thugs on Columbus expedition:
The requisition to the municipality of Palos runs thus:
“In consequence of the offence which we received at your hands, you were
condemned by our council to render us the service of two caravels,
armed, at your own expense, for the space of twelve months, whenever and
wherever it should be our pleasure to demand the same:” (30th April,
1492.) A proclamation of immunity from civil and criminal process to
persons taking service in the expedition was issued at the same time.
The ship of Columbus was, therefore, a refuge for criminals and runaway
debtors, a cave of Adullam for the discontented and the desperate. To
have to deal with such a community was not of the least of Columbus’s
difficulties.
The Life of Columbus: http://infomotions.com/etexts/gutenberg/dirs/1/5/3/3/15336/15336.htm
So I guess this is one “blockbuster” which the residents of Leigh Creek will not want to miss, otherwise they might find themselves up another creek without very good paddles:)
B&B would love for the Aussie Reserve Bank be at the ready with the same implied guarantee which the US Fed is giving its basket cases – most lately: Lehman Brothers? US Banks are looting US taxpayers via the Fed’s discount window exchanging toxic paper for marketable Treasuries. Aussie banks are doing the same and going one better by looting the Future Fund too! The banking industry has always been an illusion based fractional reserve lending underwritten by worthless fiat currency. The pulling aside of the confidence curtain is what will kill B&B. If I were at the Millionaire’s factory today, I’d be ‘Naked Shorting’ the buggery out of B&B and herein is the next big scam to be exposed about our rotten investment banking and stock markets. I’m putting my money under the bed before the lines form outside the teller windows. I feel Depression coming on? The solution will not be a Bex and a good lie down.
Given that BBW has the lion’s share of “real” assets, what happens to them? Do they just get cannibalized by the mothership and other satellites? Does any part of this house of cards retain anything near its current value? It’s amazing how common and (temporarily) lucrative Ponzi schemes still are after all these years!
B&B must have borowed up to the hilt and now the chickens have come home to roost. I wonder how many others who have also been borrowing are in the same boat. I see many Bonds in the future. I fear for our economy.