Babcock faces off adversarial investors

Babcock Capital Should Consider Winding Up, Says Pendvest

By Stuart Kelly

Nov. 29 (Bloomberg) -- Babcock & Brown Capital Ltd., a fund managed by Australia's second-largest investment bank, has performed so poorly on the stock exchange it should consider winding up, a U.K hedge fund said.

Pendvest LLP, the fund's second-biggest investor with a 5.2 percent stake, demanded a special meeting to vote on returning half the company to shareholders and consider options including winding up completely, according to a letter sent to Babcock yesterday, a copy of which was obtained by Bloomberg News. Pendvest said Babcock's assets are worth more than its share price.

``Babcock & Brown Capital is an inefficient vehicle where the underlying value of the investments may never be truly reflected in the stock price,'' London-based Pendvest said in the letter. Babcock Capital declined to comment on the allegations and agreed to hold a meeting on the matter.

Babcock capital's shares jumped 7.2 percent to A$4.77 on the Australian Stock Exchange at 10:56 a.m. in Sydney. The Sydney- based fund had advanced 0.5 percent this year as of yesterday's close, lagging behind the 12 percent gain in the S&P/ASX 200 Index. The fund posted a full-year net loss of A$132 million ($117 million) in August after earlier forecasting a profit of as much as A$30 million.

Babcock & Brown Capital said it will call a meeting within 21 days to consider the proposals, according to a statement to the stock exchange. Erica Borgelt, a spokeswoman for Babcock & Brown Capital, declined to comment further on the matter.

Pendvest wants Babcock to return A$425 million, or A$2.13 a share, to investors. The asset manager valued Babcock shares at between A$7.80 and A$10 each.

Irish Investments

Pendvest also said Babcock should consider selling its investments in Eircom Ltd., an Irish telephone business, and Golden Pages, which runs Israel's largest print and internet phone directories.

Babcock, which last year bought 57 percent of Ireland's largest phone company, said in August cutting 900 Eircom employees may cost as much as 175 million euros ($260 million), paring as much as A$165 million from earnings. It initially forecast an impact of as much as A$5 million.

Pendvest also demanded the company address A$122.6 million in fees paid to parent Babcock & Brown Ltd., saying some of the fees should be returned to shareholders. Babcock owns 7 percent of the fund.

Babcock buys toll road stake in Thailand

Babcock & Brown to Buy Toll Road Stake in Thailand (Update1)
By Stuart Kelly

Oct. 22 (Bloomberg) -- Babcock & Brown Ltd., Australia's second-largest investment bank, agreed to buy a stake in Don Muang Tollway Pcl, which owns a 21-kilometer toll road in Thailand.

Babcock plans to buy a stake as large as 33 percent for A$130 million ($115 million), subject to agreement of Don Muang's shareholders, the Sydney-based company said in a statement today.

The closely held Thai company operates an elevated six-lane toll road from downtown Bangkok to the northern suburbs, one of the most populated parts of the nation.

In June, Babcock bought 10 percent of Brisa Auto-Estradas de Portugal SA for 590 million euros ($846 million), its first investment in toll roads. The company is following larger domestic competitor Macquarie Bank Ltd., which manages toll-road investments in the U.S., Canada and the U.K.

Babcock buys bulk cargo port operator in Italy

Babcock Infrastructure Acquires Italian Port Operator (Update1)
By Angela Macdonald-Smith

Aug. 6 (Bloomberg) -- Babcock & Brown Infrastructure Group, an Australian owner of ports, gas and power lines, bought a majority stake in Terminal Rinfuse Italia SpA for A$92 million ($79 million), its fourth port acquisition in 18 months.

The acquisition of the 50.3 percent stake in Italy's largest dry bulk port operator, known as TRI, will immediately add to cash flows, Sydney-based Babcock & Brown Infrastructure, or BBI, said today in a statement to the Australian Stock Exchange.

Babcock Infrastructure, managed by investment bank Babcock & Brown Ltd., said in May it was in exclusive talks to buy controlling interests in a range of ports in Europe, building on acquisitions in the U.K. and Spain. Terminal Rinfuse operates at Genoa, Savona and Venice ports and handles about 8 million metric tons a year of products, of which about half are coal and coke.

``TRI presents BBI with the ability to acquire a significant share in the Italian dry bulk terminal market while at the same time further strengthening its position in the strategic northern Mediterranean bulk port sector,'' the company said in the statement.

The transaction involves Babcock Infrastructure acquiring 80 percent of Estate SpA, which controls 62.9 percent of Terminal Rinfuse. Terminal Rinfuse had 2006 earnings before interest, tax, depreciation and amortization of 14.2 million euros ($20 million) and the acquisition price equates to a valuation for the company, including debt, of 139 million euros, Babcock Infrastructure said.

Babcock Infrastructure bought a majority stake in Tarragona Port Services in May and last month acquired most of Belgium's Manuport Group.

Funds Fall Amidst Subprime Rout

Macquarie's Fortress Funds Fall Amid Subprime Rout (Update5)
By Stuart Kelly

Aug. 1 (Bloomberg) -- Macquarie Bank Ltd., Australia's largest securities firm, said investors in two of its high-yield funds may lose 25 percent of their money as a rout in the U.S. sub-prime market spreads.

Macquarie Fortress Investments Ltd., with $873 million of funds, was forced to sell assets to avoid breaching its loan agreements, the firm said in a statement. The company's notes slumped while shares in its parent headed for their biggest drop in 5 1/2 years.
``The contagion looks like it's spreading and some of the bigger names are now being dragged in,'' said Shane Oliver, who helps manage the equivalent of $83 billion at AMP Capital Investors in Sydney.

Funds are being caught in a downward spiral because banks are forcing borrowers to sell assets as the value of collateral declines. Bear Stearns Cos. halted redemptions from a third hedge fund yesterday while Sydney-based Absolute Capital Group Ltd. and Basis Capital Fund Management Ltd. are trying to avoid making sales at distressed prices.

``There have been no defaults in the portfolio and no reason to believe that the loans will not continue to pay their interest and repay principal,'' Macquarie Fortress director Peter Lucas said in the statement.

Asia Genesis Management, a hedge fund based in Singapore that manages about $450 million, today said it has increased cash holdings to 95 percent of its assets to avoid losses.

`More Cockroaches'
``There are still some more cockroaches to come out from under the fridge,'' Chris Viol, a credit specialist at Citigroup Inc. in Sydney, said in an interview. ``We are getting a lot of questions about the big picture and the amount of contagion to investment grade credit.''
Bear Stearns's Asset-Backed Securities Fund, with about $900 million invested in asset-backed securities, including mortgage bonds, suspended redemption after investors demanded their money back, spokesman Russell Sherman said.

Lisa Jamieson, a Sydney-based spokeswoman for Macquarie, wasn't immediately available to say whether Fortress will halt redemptions or comment on the bank's investments in credit markets.

Fortress notes, which trade on the Australian Stock Exchange, slumped 23 percent to 58 Australian cents at 3:15 p.m. in Sydney. The company aims to pay investors a 10.1 percent annual yield by investing in loans to companies with good records of repaying debt, according to a prospectus dated Feb. 3, 2006, for a third series of notes.

Leveraged Investments
Fortress uses leverage of 4.5 to 6.5 times and allows individual investors with as little as A$5,140 ($4,350) to spend to buy the notes.
Macquarie Bank's shares headed for their biggest fall since February 2002 with a 10 percent decline to A$74.61. They have slumped 19 percent over the past two weeks, wiping A$4.6 billion from the company's market value amid concern that global takeovers may decline and prices will fall in debt markets. Shares of Goldman Sachs Group Inc. and Bear Stearns dropped 14 percent and 15 percent in July.
The stock of other Australian investment-related companies fell. Babcock & Brown Ltd., the nation's second-biggest investment bank, slid 7.8 percent and Allco Finance Group Ltd., a Sydney-based manager of energy and property assets, fell 6.5 percent.

Christine Bowen, a spokeswoman for Allco, declined to say whether the company had any investments that may be affected by the U.S. credit markets. A spokeswoman for Babcock wasn't immediately available for comment.

Prices Fall
The average price of assets in the Fortress portfolios had fallen by 4 percent as at July 30, Lucas said in the statement. The value of the assets may decline a further 20 percent to 25 percent, he said. The funds had $873 million in assets on May 31.

Lucas said a ``continued deterioration in senior loan prices as we have seen in recent days'' could put Fortress in breach of lending requirements.

Investors in Fortress securities may lose A$300 million, the Australian newspaper reported earlier.

A decision on the payment of interest income for the three months ended Aug. 31 will be made nearer the payment date, and may depend on the level of loan sales, Lucas said.

Credit-default swaps based on $10 million of Macquarie Bank bonds rose $13,000 to $59,000 late yesterday, according to prices from National Australia Bank Ltd. That's up from $22,000 on July 10. Investors use the five-year contracts to speculate on credit quality. The costs, or spreads, increase as the perception of creditworthiness deteriorates.

Credit-default swaps, originally conceived to protect creditors against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should the company fail to keep to its debt agreements.

``People are nervous because Macquarie looks and smells a lot like the companies that have been affected by this in the U.S.,'' said Hans Kunnen, who helps manage $117 billion at Colonial First State Global Asset Management in Sydney.

Old article - Renewables Review 2006

Renewables Review 2006
14 February 2007

(IJ Online) The past year the renewables market grew dynamically in 2006, doubling by volume from US$11 billion to US$22.8 billion and by deal size with 133 deals closed, up from only 68 the previous year - write Simon Ellis and Martin Malinowski.

The surge can be attributed to three trends: the acquisition and refinancing of large portfolios by corporates and private equity companies, the revival of the US wind and ethanol markets through new policy drivers and the arrival of large-scale solar in the Spanish market.

As a consequence of these factors, the Spanish and US markets both topped the US$5 billion mark for transaction value and hosted more than 25 deals each. Italy and Germany both jumped significantly on the back of large waste-to-energy deals and wind portfolio consolidations.

The market also saw strong growth in the second half, buoyed by the closing of three large wind portfolio financings: Trinergy's 'Project S' refinancing, Acciona's Renomar wind portfolio and Babcock & Brown's 'Martel' refinancing of Enersis' Portuguese wind assets.
In the past six months RBS was the leading underwriter of project finance debt lending US$2.2 billion, while HSH Nordbank was the most active globally lending 15 tranches of debt.

The next six months are expected to be marked by a downturn in US renewables as the ethanol market reaches saturation point, a trend partially offset by a growth in the wind sector.

In Europe, a number of offshore wind, biomass and waste-to-energy deals coupled with wind portfolio financings are expected to stabilise the lending market as new-build onshore wind loses ground.

The European market: Private equity arrives
The European market saw economies of scale begin to play a dramatic role as private equity funds sought to transfer mature wind assets into pension fund collateral.

Trinergy, in which the private equity firm Matrix Group holds a significant stake, closed the largest wind transaction on record - a US$1.5 billion refinancing of its 648MW German and Italian portfolio.

Investment bank Babcock & Brown also stepped up its move into the market splitting the French wind, Iberian wind and Portuguese hydro assets of Enersis into three portfolios.

In the third major renewables transaction of the second half, Spanish construction giant Acciona opted to refinance its bridge loan for the Renomar transaction through Spanish investor's vehicle Medwind.

According to John Dunlop, manager of energy and renewables at HSH Nordbank, the large private equity plays are here to stay: 'I think that we will continue to see portfolio financings because there are a lot of private equity funds in the market and you are going to want portfolio financings not individual projects,' he says.

Global Renewables Market 2005-6

Overall consolidation deals contributed to the significant increase in volume in Spain and Portugal.

In Germany, there was no change in deal flow from 2005 to 2006, but a vast jump in overall volume from US$470 million to US$2,480 million.

This can be largely put down to a move away from the small-scale new build wind projects that dominated the market in 2005 towards consolidation of wind assets, such as Breeze II, and the arrival of large waste-to-energy projects including Infraserv's US$430 million Hoechst plant.

Despite passing the 2,000MW mark for wind generation, the UK continued to underperform as only four wind farms with a total value of US$400 million were project financed through 2006.

This compares unfavourably with France, where despite a subsidy regime still perceived as 'unattractive', 10 wind portfolios with a total value US$700 million reached close.

The delay stems from the decentralised planning system, which has slowed projects such as the vital Beauly-Denny transmission line connecting the grid with wind farms in the Highlands, and uncertainty about the reallocation of the Renewables Obligation Certificates (ROCs) in the forthcoming energy review.

The Barker Review into planning - currently at the consultation stage - is not expected to have any catalytic effect on planning in the 2007 outlook.

Meanwhile the forthcoming Energy Review could also provide a breakthrough in the financing of offshore wind as John Dunlop explains: 'The uncertainty with the availability risk for offshore wind is slowly going away with time as more and more operating experience has been built up.

'It is still difficult to get the numbers to stack up with offshore given they are so much more expensive,' Dunlop adds, 'I think that will change if the White Paper that will be produced in spring allocates more ROCs per MW/h to offshore projects than their onshore counterparts.'

Prominent Renewables Transactions H2 2006

Solar Power Focus
2006 was very much Spain's year in solar power project financing, as a combination of generous government incentives and more favourable locations saw it overtake last year's leader, Germany.

A worldwide shortage of polycrystalline silicon (an essential component of PV panels) also increased costs, making many German PV projects financially unviable. Portugal also made its mark on the sector with the largest PV financing to date in Sepra in April. The main target of Spanish government generosity was solar plants of less than 100kW, where incentives are almost double those offered for larger plants. Most of these projects were too small to be usefully structured as project financings. This is likely to change, however. La Magascona - a 20MW photovoltaic plant which closed in 2006 qualified for the high rate energy tariff because it was split into 200 separate installations.

A highly significant development was the resurgence of parabolic trench geothermal technology in the two near-identical Andasol projects which closed in 2006 to the tune of US$650m. A technologically superior alternative to photovoltaics, it does not rely on silicon, and improves on the power availability issues of PV by heating up a reservoir of molten salt in the daytime which can generate steam to power a turbine after the sun has set. At 50MW each, they are also the largest solar projects to date.

Sponsors of solar projects have benefited from increasingly beneficial terms in 2006: Pricings have been within the 50-100 bp range, and debt:equity ratios have steadily been ratcheting up towards the nineties. This is a reflection of several factors:

solar power projects have gained a great degree of market acceptance as a secure investment owing to the fact that the only real risk they face is political - from local authorities reneging on their power purchasing agreements. This is widely acknowledged as a highly unlikely development

solar power projects are more reliable and and less subject to availability problems than wind farms. The only issue to date has been their relatively small size, which has tended to make project financings look unattractive. But the arrival of the AndaSol parabolic trench projects, and portfolio-style projects like Sempra and Magascona are gradually changing this status quo

the value to banks of participation in solar projects is also not measured solely in financial terms.With ecological concerns becoming more prominent, banks are keener than ever to be associated with renewables projects, and this is reflected in the more favourable terms sponsors have been enjoying

Solar Outlook
Spain is expected to enjoy another robust year for solar power financings in 2007. The target for the Spanish government is to have 400MW installed by 2010, although industry experts have predicted this figure may reach as much as 1,000MW.

Although solar projects have thus far enjoyed tariff agreements in Europe that have been easily the most generous out of all the renewables incentives, this could change quickly. As quotas fill up, local authorities could decide at short notice that the costs of their solar drive are outweighing the benefits.

And a question mark hangs over the future of photovoltaic projects, especially in sites further from the equator. Industry experts recently warned that the shortage of polycrystalline silicon would not ease in 2008, as had previously been expected, but that it could persist for as long as 5 years. In such a situation it is hard to see many large PV projects taking off, particularly considering the stiff competition they will face from thermosolar projects which do not require silicon at all.


The US: Good politics, finally
US renewables received a double boost at the start of 2006 with the banning of fuel substitute MTBE and the extension of the Production Tax Credit (PTC) for renewables to 2008, catalysing ethanol and wind development respectively.

The US ethanol market grew from virtually a standing start to reach US$2.4 billion over the course of the year, the equivalent of nearly an extra two billion gallons of capacity was financed over the course of the year

In addition to the recorded figures it is estimated that up to 10 stand-alone projects worth a further US$1-1.2 billion were financed by small-scale agricultural banks, bringing total market value to around US$3.5 billion.

Two portfolio financings in particular showed the potential in the market for combining sophistication, scale and the offsetting of feedstock/ offtake risks: the ASAlliance Biofuels and BFE Operating Company Ethanol.

ASAlliances' US$423 million, 300 gallon-per-year portfolio hedged its risks with 10-year feedstock and offtake contracts with US agricultural conglomerate Cargill.

The deal also attracted multi-party financing arranged by WestLB through a US$175 million senior facility priced at Libor + 250bp, a US$100 million Term B Loan priced at Libor + 450bp and US$54 million in sub-debt in the 1,300 to 1,500bp range.

Later in the year, BFE's two plant financing showed financier's increased comfort with ethanol risks. BNP Paribas' single US$300 million credit facility priced at Libor + 300bp, the lowest spread achieved for a large-scale greenfield ethanol financing to date.

Financiers showed some signs of cooling off in the second half, especially towards smaller projects, with only four deals with an average size of US$250 million. In the first half, eight projects closed with an average financing requirement of US$150 million.

Indeed ethanol development in the US is likely to fall off in H1 2007 due to two factors, firstly the convergence of the falling oil price with the rising cost of corn, the predominant feedstock, which doubled from US$2 to US$4 per bushel over the year.

Secondly, saturation, as the industry nears the federal mandated target of 7.5 billion gallons per year, there is doubt about the certainty of the long term commitment to the fuel substitute.

A partial replacement could be distillate-based biodiesel which draws its feedstock from agricultural by-products and also has a supportive subsidy regime. The first 100 million gallon plant - a scale comparable with the largest ethanol plants - is in development.
Further ahead cellulosic ethanol drawn from switchgrass and other freely available organic products could provide a more sustainable substitute to conventional fuel, and received the personal approval of President Bush in the last State of the Union.

After the extension of the PTC, wind also surged both in overall volume and scale as 12 projects closed with an average deal size of US$175 million.

The scale of US wind projects is partly a function of the historically stop-start nature of the US market. After every renewal of the PTC, turbine supply fails to meet demand, pushing up prices and favouring large utility sponsors with the balance sheets to make large orders.
A current bill to extend the PTC for a further five years could redress the balance in the US while easing the global pressure on turbines and parts, by allowing manufacturers to set up in the US market on a long term basis.

John Dunlop of HSH Nordbank claims the extension will be crucial to allow manufacturers to react to demand in the US: 'When turbine manufacturers and component manufacturers look at a market which goes from 2,000 turbines to zero from year to year, it is pretty tough to justify building a plant in the US that will be running full throttle one year and then doing nothing the next. No long-term investment decisions can be made on the stop-go PTC.

'If you have got a five-year extensions instead of the two-year extension we have seen historically', he adds 'that will lead to more turbine supply in the market and I think you will see an easing of the turbine shortages.'

The rest of the world - Growing momentum
Phase one of Brazil's renewable energy incentives programme PROINFA, aimed at generating 3,300MW of renewable power, split equally between wind, mini-hydro (of up to 30MW) and biomass started to bear fruit with US$465 million in project financing committed.
Developer confidence has been bolstered by the prospects of a PPA from state utility Electrobras for 70 per cent of generation and an A-loan of up to 80 per cent of project value from national development bank BNDES.

A typical structure was Iberdrola's Rio do Fogo wind farm which closed in March with a US$31 million BNDES direct loan TJLP (8.15%) +350bp and an ABN AMRO onlending facility for the same amount priced at TJLP+400-425.

In Asia Pacific, Japan saw greatest dealflow with 10 deals closed in the wind sector, representing a net value of US$310 million. It is indicative of the small scale of Japanese wind that by volume, the largest market in the region was Australia where only two wind projects were closed with a net value of US$350 million.

In the medium term, the outlook for the world's two upcoming economic superpowers will hinge largely on the success of the UN Clean Development Mechanism (CDM), under which projects generate Certified Emissions Reductions (CERs) tradable with EU carbon credits.
The Chinese government had approved 164 projects to apply for CDM status, as of the start of November 2006, of which 30 had received final approval from the CDM's international Executive Board.

In terms of breakdown, 122 of these were wind or mini-hydro, 17 were methane recovery and a further eight were dedicated to restricting the potent pollutant HFC23.

At the start of the year, Endesa signed a US$36 million deal to purchase CERs from a 3-wind farm 195MW portfolio planned by one of China's largest independent power producers Huaneng Power International.

Meanwhile, Hong Kong-based utility China Light and Power has committed to generate five per cent of its energy from wind and mini-hydro by 2010.

In India, the strength of domestic turbine manufacturer Suzlon is expected to act as a strong corrective to turbine supply concerns while industrial developers increase their use of captive wind and mini-hydro plants.

However, policy uncertainty about international carbon markets, high country risk and low deal size are expected to make Chinese and Indian renewable projects unsuitable for international project financing in the short-term. Domestic banks in both countries are expected to have a stronger appetite.

Conclusion - The Maturing Market
The growing scale of renewable energy deals throughout 2006 is an encouraging sign both for the maturity of the technology and market as a whole.

In Europe, independent developers are beginning to build portfolios on a scale that attract the interest of long-term investors.
The growing scale of renewables could also be good news for strained national grids around trhe EU. The Netherlands is in dire need of extra generation capacity, with the reserve capacity falling below five per cent. Germany and the UK are also falling below the recommended 15 per cent reserve margins.

A number of renewable developers including Theolia, Fred Olsen and Airtricity are expected to seek expansion financings in 2006.
In addition, the demand from private equity for mature wind assets will ensure a number of mid-sized utilities which expanded into renewables beyond their host countries may be tempted to realise the attractive gains of concentration on core markets.
Meanwhile the United States, while the ethanol boom will begin to dissipate, a more positive policy stance towards other renewables is expected to more than compensate.

For the global wind energy industry globally, the long-term extension of the US PTC is also crucial. The resulting establishment of a permanent wind manufacturing base in the US could put an end to the current shortages of turbines, gearboxes and bearings which has frustrated the expansion of the global market.