Babcock Power Shares Drop on Charges for Sale, Alinta

By Angela Macdonald-Smith

Aug. 18 (Bloomberg) -- Babcock & Brown Power, Australia's biggest publicly traded generator, fell to a record low in Sydney trading after saying it will take A$452 million ($393 million) of charges on a retailing unit and the sale of a plant.

Babcock Power dropped 17.5 cents, or 41 percent, to 25 cents, the largest-ever decline. The shares have fallen from A$2.02 three months ago, cutting the Sydney-based company's market value to about A$182 million from A$1.5 billion in May.

The power producer managed by Babcock & Brown Ltd. today said it will take a non-cash charge of A$410 million in its 2008 earnings to write down the value of the Alinta retail unit, set at A$1.6 billion in November, in addition to a A$42 million loss on the sale of a generator in Tasmania. The company has been selling plants to cut debt and bolster its balance sheet.

``No-one ever valued Alinta at what they paid for it,'' said Paul Johnston, a utilities analyst at Commonwealth Securities Ltd. in Melbourne. The sale of the Tamar plant for A$100 million after spending A$223 million on its construction ``is an awful outcome,'' he said.

Sydney-based Babcock & Brown Ltd., the Australian manager of infrastructure assets, rose 1.4 percent to A$4.51, after earlier falling as low as A$3.91. The stock dropped 35 percent last week as the company struggles to win back investors' confidence after the global credit seizure brought into question its strategy of borrowing to buy utilities and bundling them into funds.

`Rocky Foundation'

Babcock Power's assets ``are on a rocky financial foundation, there's no denying that, and we are making significant progress to stabilize that,'' Chairman Len Gill told analysts and reporters on a conference call. ``We've got more work to do and we are doing that at a very fast pace.''

Babcock Power has cut net debt by more than A$770 million in the last six weeks by selling plants. The latest sale, of the Tamar project, is to the Tasmanian state government and will avoid A$241 million of funds needed to complete construction.

The company still has to invest A$95 million to complete the Kwinana power station and about A$44 million to complete the Neerabup plant, both in Western Australia, Chief Financial Officer James Brown said on the conference call.

The company hired UBS AG to carry out a strategic review, including advice on capital structure and dividends, and the potential sale of further assets or of the whole company.

`Expressions of Interest'

``UBS will consider various expressions of interest that have been received from third parties, as well as other value- enhancing structural alternatives,'' the company said in today's statement, sent to the Australian stock exchange. The approaches received so far cover ``all options'' and are from ``a variety of parties,'' Gill said on the call, declining to give details.

The review will also study the effect on the company of the Australian government's proposed emissions trading system, Gill said.

Babcock Power won approval from existing lenders to extend a A$120 million loan to March 31, 2009. The debt will be repaid from cash reserves and planned asset sales before that date, it said.

After the sale of the Tamar power project, the company will have total outstanding drawn debt of about A$3.7 billion, including about A$380 million from Babcock & Brown Ltd., it said. The effective interest rate on the overall debt has increased to about 8.8 percent, from 8.5 percent previously, Brown said.

Alinta Unit

Babcock Power and Singapore Power Ltd. bought Alinta Ltd. for A$7.7 billion last year and carved up the Perth-based utility's network of gas and power lines, asset management and retailing units. The shutdown of an Apache Corp. gas plant in Western Australia in June has reduced earnings at the retail business.

The future of Babcock Power may depend on the outlook for the Alinta retail unit in Western Australia, which is uncertain, said Jason Mabee, a utilities analyst at ABN Amro Australia Pty. in Sydney.

``There are question-marks over what the Western Australian business is delivering right now,'' Mabee said. Babcock Power as a whole is ``obviously in more financial stress than they let on previously,'' he said.

Babcock Power said earnings before interest, tax, depreciation and amortization were between A$330 million to A$340 million in the year ended June 30, before costs related to the Alinta transaction and one-time charges.

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