Babcock & Brown Shares Free Fall

Submitted by Craig Strzelecki on 13 June, 2008 - 11:22

Australia's second largest investment bank, Babcock and Brown has witnessed a free fall at the stock market. Investors have accelerated their selling speed after the share prices have witnessed a landslide of as much as 32 percent. The stocks have lost $7 billion in value out of which half of the loss comes from this week.

An analysis of company's holdings reveals a drop in market value by $335 million since the beginning of the year. This includes fall in value of funds of Babcock and Brown Power which are down by nearly $92 million. B&B Infrastructure is down by about $73 million while Everest Babcock and Brown have slumped to about $75 million. Its Singaporean structured finance fund is down by about $69 million. The sharp down fall in satellite funds has further added to its woes and pushed down the value of its investments to $670 million which is 33 percent below their original value if $1 billion as reflected in Babcock and Brown's books of accounts. The directors may have to write off their investments soon if the gap between carrying value and current market value do not bridge soon.

The selling spree was triggered after Babcock & Brown's announcement regarding the explosion at Varanus gas field would dent its earnings in to next year. Its energy infrastructure fund, Babcock & Brown Power saw its share prices rolling down the hill. The prices steeped as low as 28 percent which made the share prices fall below $7.50. This may trigger company's credit review by consortium of its banks.

The consortium banks would be pouring over numbers in the coming week to dole out the company from the present financial mess. However, the steep falls of share prices of the company below the levels of $7.50 would mark irreparable damages to the brand. The foremost concerns for the banks, which have now every right to step in, would be to assess the current structure and debts of mother-ship Company. It would also assess the cash flows whether they would be able to repay the existing loans and debts.

The share prices of the company have pushed down 90 cents or 9 percent to $9.52 yesterday and had breached the $10 value for the first time since May 2005.