Babcock Power Loss Widens; Ousts CEO, Finance Head

By Jason Scott

Aug. 29 (Bloomberg) -- Babcock & Brown Power, Australia's biggest publicly traded electricity producer, said its full-year loss widened after asset writedowns. The company will replace its chief executive and chief financial officer.

The loss was A$426.5 million ($368 million) in the 12 months ended June 30, compared with a loss of A$70.7 million a year earlier, the company, managed by Babcock & Brown Ltd., said in a statement to the Australian stock exchange today.

Babcock Power has plunged 93 percent in Sydney trading this year as it scrapped dividend payments and sold assets to pare debt. The Sydney-based company this month said it will take a charge of A$410 million to write down the value of its Alinta retail unit, and a A$42 million loss on the sale of a power plant in Tasmania state. It cut an earnings forecast for 2009.

``They're sailing a pretty fine line between operating and going bankrupt,'' ABN Amro Australia Pty utilities analyst Jason Mabee said today by phone from Sydney. ``I'm not confident they can remain solvent. There's not that much transparency in the business.''

Babcock & Brown Power shares fell 5 percent to close at 19 Australian cents. As of June 30, Babcock Power had negative net tangible assets per share of A$1.05, compared with a positive A$2.02 a year earlier, it said today.

`Stood Down'

Chief Executive Paul Simshauser and James Brown, chief financial officer, were ``stood down,'' Gill said. Ross Rolfe, former chief executive of Queensland utility Stanwell Corp., will become acting chief executive, effective immediately, Babcock & Brown Power said in a statement.

``We are making significant changes to improve the business,'' Chairman Leonard Gill, who was appointed on July 1, said in a teleconference today. The August 2007 ``purchase of Alinta coincided with a rapid deterioration of credit markets.''

Simshauser will take up ``a senior role'' in Babcock & Brown's infrastructure division. A replacement for Brown, who will remain in his position for up to three months, is yet to be determined.

``I don't know if the management changes are positive, but I guess they had to happen when you have that kind of a share price fall,'' ABN Amro's Mabee said. ``It doesn't change the predicament they're in. I just wouldn't want to be the guy in charge of fixing it, that's for sure.''

Varanus Island

Alinta, its Western Australian gas retail unit, incurred a A$10.8 million loss because of gas supply disruption caused by the blast at Apache Corp.'s Varanus Island plant on June 3, Babcock & Brown Power said.

Taking into account the sale of its Ecogen and Uranquinty units and the impact of the Varanus Island blast, earnings before interest, tax, depreciation and amortization, or Ebitda, for the year ending June 30, 2009, are likely to be between A$350 million and A$360 million, Babcock & Brown Power said. That's down from the A$439 million to A$528 million indicated on June 19.

Sales rose to A$1.53 billion from A$534.5 million in the year ended June 30.

The company has appointed UBS AG to review its capital structure, with all options to be considered, it said.

The global credit seizure that started a year ago and saddled financial institutions with more than $500 billion in losses and asset write downs has brought into question parent Babcock & Brown's strategy of borrowing to buy utilities and bundling them into funds.

Phil Green

Babcock & Brown on Aug. 21 named Chief Financial Officer Michael Larkin to replace Phil Green as chief financial officer after the company reported its first profit decline. Jim Babcock, 63, who founded the company in 1977, stepped down as executive chairman.

Babcock & Brown, which has the worst-performing of 988 stocks on the MSCI Asia-Pacific Index this year, said Aug. 21 net income in the six months ended June 30 fell 24 percent to A$150.9 million as the value of its listed funds slumped. It posted A$441 million of write downs in the half as its listed funds dropped and banks pressured the company to sell assets.

To contact the reporter on this story: Jason Scott in Perth at jscott14@bloomberg.net