By Angela Macdonald-Smith
Feb. 27 (Bloomberg) -- Babcock & Brown Power, the Australian electricity producer that is selling plants to reduce borrowings, said it’s seeking to avoid defaulting on its debt covenants after a “soft” start to the year cut forecast profit.
The company is most at risk of defaulting on its debt covenants during the next two quarters, Chief Financial Officer Peter Brook said today on a conference call about first-half earnings. The company believes the business is “still solvent,” even as a “cash hole” materializes over the next six months, he said.
Babcock Power yesterday cut its full-year earnings forecast by as much as 7.4 percent, citing lower-than- anticipated power prices in Queensland and reduced availability of a generator in South Australia. It is in talks with its banks about the conditions it needs to meet to maintain A$2.5 billion ($1.6 billion) of debt held at the BBPF unit.
“The board and the management are acutely aware of the debt and the cash flow pressures facing the business,” Chairman Len Gill said on the conference call. The timing of the one-off events that have reduced profit expectations is “not helpful,” he said.
Babcock Power today dropped 0.3 cent, or 5.8 percent, to 4.9 cents in Sydney trading on the Australian stock exchange.
Several short-listed parties are examining the accounts of plants set to be sold, Babcock Power said in a statement to the exchange. Some potential bidders are interested only in plants in eastern Australia, while some would only invest in those in the west, and the process may take until the fourth quarter to complete, it said.
The company has also received non-binding corporate offers, Gill said on the call. He declined to respond to questions on any approach by Bahrain-based Arcapita Bank SBC.
Babcock Power today reported an 80 percent drop in first- half net profit to A$17.8 million.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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