Fidelity dumps stake as B&B awaits debt verdict

June 18, 2008

Danny John and Scott Rochfort, The Sydney Morning Herald

BABCOCK & BROWN has lost two substantial shareholders in the past fortnight, despite the company receiving a welcome reprieve yesterday with a share price bounce of 13 per cent.

Also yesterday, analysts kept the pressure on Macquarie Group's listed infrastructure funds after the bank moved to privatise Macquarie Capital Alliance Group, prompting speculation about broader privatisation plans.

Goldman Sachs JBWere reiterated its view that Macquarie Infrastructure Group was unattractively priced compared with its rivals, after an investor roadshow in France organised by MIG to show off its 20 per cent investment in APRR, Europe's fourth-largest tolled motorway network.

"We would suggest selling the stock into any share price strength generated from the proposed privatisation of Macquarie Capital," the broker said.

Macquarie Group finished $1.85 up at $50.50 yesterday and MIG's securities shed 6c to $2.92.

In another day of heavy trading in Babcock & Brown shares, the US-based fund manager Fidelity revealed that it had sold 5.3 million shares on Thursday, when the price fell 28 per cent, and Friday, when it fell 24 per cent.

Fidelity was the second of two big international investors to sell its stakes and fall below a 5 per cent holding in Babcock & Brown. The British fund manager Barclays Group sold below that level on June 6.

UBS Nominees is the only substantial shareholder in the group, although new investors may yet emerge on the register. About 40 per cent of the business is held by staff.

Meanwhile, the company was awaiting a response from its syndicate of 25 banks as they considered whether to call a formal review of Babcock & Brown after its market capitalisation fell below $2.5 billion last Thursday.

The stock rose 68c yesterday, to $5.93. The company is still well below the share price of $7.50 that would push it above the market capitalisation trigger and the need for a bank review.

Among its listed funds, B&B Infrastructure shares rose 3c to 87c, as the fund raised the prospect of raising equity via the partial sell-down of some of assets.

B&B Infrastructure's chief financial officer, Jonathon Sellar, said: "The challenge for us is finding equity to fund the organic growth of the portfolio." He said the group's refinancing of a $518 million debt last week showed it had no problems on the debt front. "We know we can get the debt financing. The issue is the equity."

Yet Mr Sellar said he believed the sell-down in infrastructure stocks was a "short-term to medium-term scenario".

As for the credit agency Moody's putting BBI's rating on review for a possible downgrade, Mr Sellar said it unfairly tied to the fund to the share price performance of its manager, B&B.

"Even if Babcock & Brown, in the unthinkable world, was to become insolvent, that would not impact our debt in any way," he said. "I think it's an overreaction by their ratings agency."