Babcock Infrastructure May Sell Stakes in Rail, Power

By Angela Macdonald-Smith

Aug. 4 (Bloomberg) -- Babcock & Brown Infrastructure Group, the energy and transport company managed by Babcock & Brown Ltd., said it may sell as much as half of two of its principal businesses to reduce debt and provide funds for investment.

The company started identifying partners that may take stakes of as much as 50 percent in WestNet Rail and New Zealand electricity distributor Powerco Ltd., Sydney-based Babcock Infrastructure said today in a statement to the Australian stock exchange. The move also follows ``a number of unsolicited approaches,'' the company known as BBI said.

BBI said in June its board had decided to review the company's capital management strategy, including asset sales, debt levels and dividends. It bought Powerco for NZ$680 million ($495 million) in 2004, and a majority stake in WestNet Rail in Western Australia in 2006, valuing the Western Australian rail track company at about A$854 million ($794 million).

``BBI will apply the proceeds of any completed transaction to reducing corporate gearing and providing capacity for BBI to fund future accretive investment opportunities,'' the company said in the statement. An update will be provided at the release of annual earnings on Aug. 26, it said.

Babcock Infrastructure gained 3 Australian cents, or 3.4 percent, to 90.5 cents in Sydney trading. The shares have slumped 43 percent this year amid investor concern that the company may fail to refinance debt and fund future investments.

Call Option

Powerco's BBB rating isn't immediately affected by the move, Standard & Poor's Ratings Services said. The company, New Zealand's second-largest electricity and gas distributor, has more than 400,000 customer connections.

``Subject to how the divestment process proceeds, the ratings and outlook on Powerco will be reviewed,'' S&P said in an e-mailed statement.

BBI owns 76 percent of WestNet Rail and is due to exercise a call option by the end of the year over the remaining interest. WestNet Rail moves about 50 million metric tons a year of freight on its rail network of 5,100 kilometers (3,169 miles) between Perth and Kalgoorlie that is leased from the state government.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net