Investor jitters over Australian investment corporations Babcock & Brown and Macquarie Group has brought the impact of the credit crunch closer to New Zealand shores.
Shares in Macquarie Group have bounced wildly in the past two days of trading. They soared yesterday - closing up 37 per cent for the day. The rise came after the company successfully scotched rumours about liquidity issues.
The shares had plunged 23 per cent on Thursday following the downward trajectory of beleaguered investment companies Babcock & Brown and Allco Finance, as concern spread that Australia's largest investment bank could have trouble repaying debt in light of the global credit crisis.
The seizure in credit markets, which bankrupted Lehman Brothers and sent insurer American International Group into the hands of the US Government, has raised doubts about Sydney-based Macquarie and Babcock's debt-driven funding models.
Both have significant investments in New Zealand, including Babcock's holdings in electricity and gas distribution company Powerco, of which it is placing up to 50 per cent for sale.
"These companies are under the weight of a fair amount of debt. It's causing certainly a lot of issues," said Hamilton Hindin Greene director Grant Williamson.
"I think we've seen worldwide what has happened with companies that have had too much debt - when you've got declining asset values and a difficulty in refinancing that debt.
"That is what is happening around the world when you compare the likes of Goldman Sachs on Wall St and Lehman Brothers. Everything has been hit extremely hard, and in this environment anyone who's got too much debt is in a spot of bother.
"Babcock & Brown, which was once considered a Blue Chip investment bank, has seen its share price slashed to less than a dollar a share."
Williamson stressed that he did not consider Macquarie to be in the same category as Babcock and Allco, but market sentiment around investment stocks was overwhelmingly negative.
"The thing is all of these companies are quite complex ... so it's not particularly easy to read what sort of debt levels, equity and assets are actually owned. It's quite a complicated situation where a lot of investors and even analysts are struggling to actually read how distressed these companies might be."
Analysts including Citigroup's Mike Younger said concerns that Macquarie may not survive the global credit crisis were unfounded.
"We believe inaccurate perceptions over Macquarie's capital and funding positions have moved its share price sharply lower this week," said Melbourne-based Younger. "We view Macquarie's balance sheet as solid, its funding position favourable, its capital position comfortable and refinancing risk manageable."
But investors will still be cautious. As a note from Goldman Sachs JBWere pointed out: "Until there is greater confidence around Macquarie's ability to refinance its term funding, investors are likely to remain cautious on the stock".
Babcock & Brown
* Powerco - New Zealand's second largest electricity and gas distribution company. Up to 50 per cent is for sale.
* NZ Windfarm's $80 million Te Rere Hau Wind Farm project in the Tararua Ranges - B&B has a joint 50 per cent stake with Australian renewable energy project developer NP Power.
* Jacks Point and Henley Downs - $43.3m investment in these adjoining residential developments sharing an 18-hole golf course near Queenstown.
* Glenbrook Power Station - 112MW cogeneration power plant which supplies electricity and steam to the Glenbrook steelworks.
* Also helped fund Cornerstone Group's commercial and residential development project in Albany and the $250 million holiday complex Whisper Cove at Snell's Beach. Also has investments in retirement villages in the North Island.
* Investment banking arm.
* Institutional & retail stockbroking operations.
* Majority stakeholder in publicly-listed rest home care operator Metlifecare via its Australian investment arm. Also owns several other New Zealand rest home operations including the former Red Cross-run homes.
Allco Finance Group
* Established operations here in 2006, with an office in Palmerston North.
* Investments in three wind development projects - Motorimu in Manawatu, Pori in the Tararua district and Waverley in South Taranaki - which once constructed, could provide up to 310MW of clean energy. These assets are currently being marketed for sale.
* Offshoot Allco HIT is selling off Strategic Investment Group - the parent of Strategic Finance - to a consortium including CEO Kerry Finnigan and executive director Jock Hobbs.