EIRCOM'S IMMEDIATE owner, Babcock Brown Capital (BCM), saw its share price drop 14 per cent as its ultimate parent battled a collapse of investor confidence in the face of a likely review by its banks of A$2.8 billion (€1.7 billion) of debt.
BCM, a listed fund managed by troubled investment bank Babock Brown, sought to reassure the market yesterday that the debt review had no effect on it or on the debt positions of Eircom and its only other asset, Israeli Golden Pages.
"Further, BCM has no cross shareholding or loans with Babcock Brown Limited or any its funds. Both Eircom and Golden Pages have long-dated debt profiles which are non-recourse to BCM and have no conditions relating to the financial position of Babcock Brown Limited or its roll as manager of BCM," the fund said in a statement.
"Eircom and Golden Pages continue to meet all their required debt covenants. BCM remains in a strong cash position with approximately A$240 million available in cash, which has been allocated to capital management programmes, and a further A$150 million cash reserve to support current investments. BCM's cash is held on hand or in short-term deposits of no greater than 90 days with quality-rated Australian financial institutions."
Babcock Brown shares lost another 24 per cent on the Australian market yesterday, compounding a 28 per cent collapse on Thursday when its market capitalisation dropped below the A$2.5 billion level that can trigger a debt review. Its market capitalisation last night stood at A$1.75 billion, in contrast to A£$12 billion less than a year ago. Although Babcock Brown has played down the review, it is likely to raise cash by selling some easily-disposable assets. It must seek bank permission to pay dividends and subordinated debt distributions.
"We have assumed that a senior debt review will be initiated, with materially destructive consequences for Babcock Brown in terms of counterparty confidence, brand and future earnings trajectory," said James Ellis, an analyst at Credit Suisse.
UBS, noting that it believed the bank's balance sheet and liquidity position to be sound, said a management buy-out or break-up of the company was possible. The executive team, led by chief executive and BCM director Phil Green, own 43 per cent of the business.
Another analyst suggested that the bank might need to force out senior executives to stem the slide in the shares. Concerns over Babcock Brown's future persisted in spite of the revelation that it had led a consortium to buy Angel Trains, the British train-leasing business, for £3.6 billion (€4.56 billion), including debt, from Royal Bank of Scotland.
Often compared to compatriot Macquarie because of its use of the managed fund model, Babcock has been under siege for much of the last year over concerns that its business model relied too heavily on debt. (Additional reporting: Financial Times)
