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Australian investment firm Babcock & Brown plans to cut more than half of its staff and separate its businesses to avoid defaulting on debts of A$3.1 billion ($3.6 billion).
The Sydney-based company plans to reduce headcount from 1450 to 600 by 2010 while it renegotiates debt agreements with
bankers, it said yesterday. Babcock has lost 99 per cent of its market value this year as it fights to avoid the fate of Allco Finance Group, a Sydney-based infrastructure funds manager that collapsed this month.
Analyst John Heagerty at ABN Amro predicts Babcock may breach loan agreements because the credit crisis has made it harder to sell assets.
"They're trying to do everything they can to keep the banks on board, because without their acquiescence it's all over," said Richard Wallace at Wallace Funds Management.
"The restructure will come to naught unless they can sell assets, and in this market you won't get anything approaching book value for at least the next six months."
Babcock & Brown Infrastructure Group, a fund managed by Babcock & Brown, said yesterday that it was examining the potential sale of as much as 49 per cent of Australia's second-biggest coal-export harbour after drawing interest from potential bidders.
The company, which said it would "only look to sell down if the price is right", on November 5 warned that divestments were "extremely difficult".
Babcock & Brown said it was separating the existing infrastructure investment business from the assets the firm was trying to sell to fund repaying half of the A$3.1 billion in loans by 2011.
Wachovia may seize collateral on a US$112 million ($204 million) loan, Babcock said this week, putting it at risk of losing as much as US$41 million on a real estate venture with GPT Group.
Wachovia's warning came even as Babcock announced the sale of its Enersis wind energy business in Portugal for about €1.15 billion ($2.64 billion). Proceeds of A$285.8 million from that sale won't go toward fulfilling an agreement made in June with lenders to repay A$400 million.
Babcock's interest cover ratio - a measure of its ability to repay debt - was 5.3, the company said in June. That exceeds the 3 times ratio required by its bankers. Total interest-bearing debt stands at A$9.6 billion.
Babcock agreed to pursue asset sales to cut debt on June 30 after its market value slumped below a threshold that allowed bankers to start reviewing the company. It was also forced to pay an additional A$10 million a year in interest.
- BLOOMBERG