FEARS about Babcock&Brown Power's ability to plug a gaping hole in its balance sheet have escalated into full-blown panic, after the company failed to provide any assurances it would be able to refinance a $360million debt facility due to expire in August or fund a $300million capital expenditure shortfall.
Shares in BBP plunged 40.5c, or 31 per cent, to 90c yesterday, despite the power station owner's announcing it expected to refinance a $2.7billion debt package successfully next week and saw no "material" impact on its earnings from a gas plant explosion in Western Australia.
But the lack of any mention of BBP's need to refinance a further $360million in debt, and concerns that BBP's manager, Babcock&Brown could struggle to fulfill an undertaking to provide a back-up debt package, sent BBP shares spiralling to as low as 77c at one point.
A UBS analyst, David Leitch, said his main concern was that BBP's net debt was now about six times its sharemarket value of $650million. "It's at that level which we can only describe as high risk," Mr Leitch said.
"BBP has a quite material balance sheet issue. It's way overgeared," he said, noting the company's total net debt was $4billion. This total figure was not mentioned by BBP in its recent statements to the market.
"Just because you have a great asset, you don't have great equity," Mr Leitch said, adding that BBP now had no choice but to sell assets or raise fresh capital to remain a going concern.
The chief executive of BBP, Paul Simshauser, expressed bafflement at the harsh punishment meted out to his company by investors.
"It's fair to say it's disappointing" he told the Herald. "Certainly the markets seem to have reacted in a slightly different way [to which] we might have otherwise expected," he said. Shares in the company have now fallen 75 per cent since last June.
Mr Simshauser also rejected concerns that his company was continually changing its tune. "In the ASX release we issued this morning we obviously intended to at least guide the market that the refinancing is expected to close out next week in terms of the drawdown and we didn't foresee any material impact on earnings for full year 2008 and '09," he said.
But when BBP first requested a trading halt on Tuesday it did not mention its banks were reviewing the debt-refinancing package in light of the gas plant explosion at the Apache Energy plant in Western Australia. It said only that the trading halt was needed for it to review the impact of the gas explosion on its earnings.
"Given the extraordinary nature of the events over there, I think it was prudent for all parties to go away and just assess where the business was at," Mr Simshauser said after the trading halt was lifted.
He rejected criticism that BBP failed to communicate from the outset that it would need to raise fresh capital for its ongoing expansion. But with a capital raising off the cards, Mr Simshauser said BBP was now more likely to seek to sell some power stations to raise funds. He did not say if BBP expected to refinance its $360million debt. Asset sales had been on the company's agenda for "some time" though it was flagged only last month.
"We had the view for some time that we would pretty much run both [the asset sales or debt refinancing] in tandem," he said. "We're obviously very committed to going down to review the asset sales; we've appointed independent advisers to that end to assist with that process."
