Thursday, June 25, 2009


Failed Babcock chalks up $5.4b loss

Ian Verrender, smh

June 24, 2009

BABCOCK & BROWN, the failed financial engineer that was ejected from the Australian Securities Exchange last Friday, is believed to have destroyed $5.4 billion in its final frantic year of operation - the second biggest loss in Australian history.

While accounts for the former boom market darling have been completed, they have yet to be lodged with the Australian Securities and Investment Commission as Deloittes, receivers to the group, continues to trawl through the wreckage.

The listed company enjoyed a meteoric rise from its $5 listing in 2005, soaring to a peak of $34 a share at the height of the boom before flaming out last year, burdened by $3.9 billion of debt and collapsing equity markets.

Babcock and Brown's $5.4b loss

Babcock and Brown's shareholders are fuming after it recorded one of the biggest loses ever for an Australian company.

Babcock was placed in receivership in March this year after noteholders, mostly based in New Zealand and owed about $600 million, voted to put the company under.

But the action proved to be futile, as the listed company was merely a shell, with all the operating businesses held by a subsidiary, Babcock & Brown International, where the banks hold sway.

Although the company is supposed to be in wind-down mode, its asset sales program is proving to be difficult, given the complexity of many of the operations and the dearth of buyers.

The banks have installed McGrathNicol as unofficial receivers to the subsidiary but they appear unwilling to formally bury it and crystallise further bad debts.

Insiders, meanwhile, talk of continued excess.

The beleaguered subsidiary is reportedly burning through as much as $1 million a day internationally on rent, wages and consultants fees.

Still based in Chifley Tower, one of Sydney's most expensive corporate addresses, it now occupies just three floors of the 11 it leases, the remaining eight empty and its corporate parking area a lonely cavern.

The company retains offices in New York, Connecticut, San Francisco, London, Milan and Munich, many of which are also under-utilised.

While shareholders and the subordinated debt investors - the noteholders who put the parent under - are likely to lose everything, some of the former founders appear to have escaped relatively unscathed.

Chief executive Phil Green, who predicted last year the company would make a $750 million profit even as its shares were nosediving, left for Tuscany a fortnight ago before heading off to watch the tennis at Wimbledon and the cricket at Lords.

At least Mr Green held on to his shares to almost the end, selling most for just 90c apiece.

Other partners such as chairman Jim Babcock progressively sold down their holdings at $20, $25.20 and the last tranche at $12.80. Mr Babcock is reported to be building a large house in San Francisco, reputedly worth $US15 million.

The original partners held 40 per cent of the company when it listed. By the time of the collapse, the offshore partners held just 0.2 per cent.

Excluding the US-listed News Corp, only the AMP has recorded a bigger loss with its $5.5 billion plunge into the red in 2003.