KEY POINTS:
SYDNEY: Babcock & Brown says there would be nothing left for shareholders after its lenders take their cut under a plan the debt-laden investment firm is discussing with its bankers.
"The board believes that in the current market environment and based on continuing discussions with the banking syndicate there will be no value for equity holders under the revised business plan balance sheet restructure," the Sydney-based company said.
Babcock also said there would be negligible or no value for the holders of subordinated notes.
"Equity holders getting nothing, I don't think that's any surprise to anyone," Austock Securities senior client adviser Michael Heffernan said.
"They've been cut back so much already."
Babcock shares became almost worthless last year as the company struggled to refinance A$9 billion ($11 billion) in debt, closing at a record low of 15 cents on December 30, having fallen from over A$20 the year before.
On January 7, Babcock announced that it had a negative net asset position as of December 31, and said it had submitted a business plan to the 25-bank syndicate of financiers.
The next day, Babcock shares went into a trading halt, having closed at 32.5 cents.
Babcock said at the time that any agreement with the lenders would significantly dilute existing shareholders' equity.
The investment firm now expects to make an announcement regarding the outcome of the current discussions late next week or early in the week beginning February 2.
The firm has to pay down corporate debt of A$2.8 billion and A$6.4 billion of limited recourse debt, as well as a A$150 million loan secured on December 5.
The banks' verdict on the revised business plan will determine whether Babcock will be saved from insolvency.
"The banks are realising that the best people to manage the show, even if they haven't managed it that well, are the incumbents, rather than an administrator," Heffernan said.
"It's probably better for the whole environment that companies don't go to the wall.
"And in the end, they may benefit from it, although that's taking a long-term view."
The banking syndicate is dominated by European institutions, with Australia's four main banks holding aggregate exposure estimated about A$800 million.
The firm said its books would show a "substantial negative net asset position".
- AAP
