Australian investment firm Babcock & Brown plans to divest all of its non-infrastructure related businesses, including its real estate and operating leasing units, in an attempt to pay off roughly A$3.1 billion (€1.6 billion; $2 billion) in corporate debt.
The wide-ranging action was needed to “reduce excessive debt levels and over time restore shareholder value that had been eroded in the face of public market turmoil”, the firm said in a statement.
Babcock was an active principal investor in real estate, growing its assets under management from A$74 million in 2004 to A$12.6 billion by June this year. The firm has invested in Japan, Germany, Italy, Australia and the US. Last year, Babcock acquired the regional mall operator, Gregory Greenfiled & Associates. GG&A manages 22 shopping malls in 11 states in the US.
Sydney-based Babcock, which also manages around 11 listed funds as well as several unlisted vehicles, has been pummelled on the Australian stock exchange in recent months amid shareholder concerns over its ability to meet debt repayments.
Babcock shares slid today to A0.25, down 99 percent from the firm's 52-week high of A$28.47.
The latest cutbacks represent a departure from the restructuring strategy Babcock announced in August, when it said it would wind down its corporate and structured finance division but retain its “core business”, which at the time included real estate and operating leasing.
As part of the restructuring, then chief executive Phil Green and chairman Jim Babcock both agreed to resign their posts.
“As we have progressed the strategic review, we have concluded that simplifying our operations to focus on our unique global infrastructure business is the best way to reduce debt levels and begin to restore shareholder value,” current Babcock chairman Elizabeth Nosworthy said in a statement.
Under the new plan, Babcock will reduce its headcount from 1,450 to 600 in two years. The divestments also will result in a reduction in operating costs of more than 50 percent, or in excess of $150 million over the same period.
Babcock estimates the restructuring will repay more than 50 percent of the firm's current $3.1 billion in corporate debt facilities by 2011. Babcock already has commenced discussions with banks about potential alterations to financial covenants in existing loans.
“Whether or not Babcock will survive this crisis depends on the banks,” John Heagerty, an analyst for ABN AMRO, said in an interview with PERE reporters. “Babcock has implied that they might have issues meeting debt covenants.”
Babcock said that although there is no set timetable for the divestments, the restructuring plan is expected to be largely implemented by the middle of next year.
“The real estate and operating leasing businesses have quality platforms and assets in their own right and will benefit from orderly sale to investors or existing operators focused on those sectors,” Babcock chief executive Michael Larkin said in a statement. “We have already had a number of discussions with investors and operators interested in these platforms. These discussions are ongoing.”
Babcock will retain its core infrastructure franchise, which includes fund management operations and stakes in core listed and unlisted infrastructure funds as well as the group’s wind, thermal and solar product development pipeline.