Babcock Wind Cuts Fees to Parent, Boosts Independence

By Angela Macdonald-Smith

Nov. 21 (Bloomberg) -- Babcock & Brown Wind Partners will cut fees to manager Babcock & Brown Ltd. and boost independent governance to distance itself from the parent, which is fighting to avoid defaulting on A$3.1 billion ($1.9 billion) of debt.

Under changes agreed between the two boards, the wind-power producer will also no longer have to exclusively use its parent's financial advisory services, the Sydney-based company known as BBW said today in a statement. Babcock Wind should go further and sever all links with the parent, said Kairos Fund Ltd., which owns more than 10 percent of the company.

Babcock & Brown has lost 98 percent of its market value in the past six months as it seeks to avoid the fate of Allco Finance Group Ltd., a Sydney-based manager of infrastructure funds that collapsed this month. Management arrangements with Babcock's other main funds have already been revised.

Babcock & Brown's ``distressed financial situation'' is having a ``manifest contagion effect'' on Babcock Wind's share price, Cayman-based Kairos Fund said in a letter to shareholders, sent separately today to the Australian stock exchange. The recovery of shareholder value is conditional on transforming Babcock Wind into an independent company, it said.

Babcock Wind dropped 8.3 percent to 66 Australian cents in Sydney trading. Babcock & Brown slumped 19 percent to 25 cents.

Model `Hasn't Worked'

Babcock Wind will in future have an independent chairman and reduce the number of Babcock & Brown directors on its board to one from two. It will also separate its information technology systems from its parent. The changes will more closely align the interests of shareholders with those of management, the company said.

The reforms are ``an important first step in strengthening BBW's corporate governance framework and improving BBW's management arrangements,'' Tony Battle, lead independent director, said in the statement, sent to the exchange. The independent directors will be seeking to negotiate further changes, he said.

``Changes to BBW's management agreement would be the first step towards an independent BBW,'' Citigroup Inc. said in a Nov. 17 report. ``BBW's listed history has proven that its listed model has not worked, privatization potentially being the only remaining option.''

Babcock Wind should also change its name to remove any reference to the Babcock group of companies, said Kairos Fund, Babcock Wind's third-biggest shareholder. Babcock Wind's new independent chairman and independent directors should buy back the management contract from the parent and re-hire key managerial positions, it said.

The steps should be taken with ``extreme urgency'' given Babcock's financial situation and the ``global dislocation in credit and equity markets,'' Kairos said.

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