27/08/2008 - 22:00

Troubled group to divest non-core assets

27/08/2008 - 22:00


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Western Australian assets worth more than $6 billion could be on the market as investment group Babcock & Brown Ltd and its satellite funds seek to deal with their financial troubles.

Troubled group to divest non-core assets

Western Australian assets worth more than $6 billion could be on the market as investment group Babcock & Brown Ltd and its satellite funds seek to deal with their financial troubles.

The broader Babcock & Brown group, including the satellite funds, holds part or full ownership over a diverse mix of power, infrastructure, real estate, retirement village and renewable energy assets across WA.

Babcock & Brown Infrastructure Ltd (BBI) recently announced it was looking for partners to co-invest in up to 50 per cent of its WestNet Rail business, and it is widely expected other assets could come onto the market as the group looks to divest non-core assets to reduce its debt.

BBI chief executive Jeff Kendrew said the decision to pursue a partnering arrangement with WestNet Rail was needed to bring in the necessary capital to fund its growth plans.

"WestNet Rail [has] strong potential growth projects and will need capital to exploit those attractive projects over time," he said.

WestNet Rail performed below expectations in 2008, with its performance impacted by poor grain haulage associated with the drought conditions.

Revenue for the 2008 financial year fell 2 per cent on last year to $193.5 million, with earnings before interest, taxes, depreciation and amortisation (EBITDA) down 9.8 per cent to $93.7 million, 12 per cent below expectations.

Babcock & Brown is also a major player in WA's energy infrastructure, through its ownership of Alinta's retail, network and power station assets.

Those assets have since been divided across two funds - BBI and Babcock & Brown Power Ltd (BBP).

Assets falling under the ownership of BBI include energy infrastructure services provider WestNet Energy, which has been joined with WestNet Rail to form the WestNet Infrastructure Group.

BBI also has a 74.1 per cent stake in the natural gas transmission and distribution network covering the Mid West and South West Gas Distribution System, the Kalgoorlie Distribution Network, and the Albany Distribution Network, and a 20 per cent stake in the Dampier-to-Bunbury pipeline.

BBP assumed ownership of the former AlintaAGL business, as well as the Pinjarra and Wagerup co-generation plants, Port Hedland, Newman and Cawse gas power stations.

It also holds an 11.8 per cent stake in the Goldfields gas pipeline.

While Mr Kendrew would not comment further on which other BBI assets were likely to be put on the market, he said some assets, including BBI's interest in the Dampier-to-Bunbury pipeline, were considered core to its portfolio.

"There are some assets in our portfolio that we would consider are the crown jewels, you'd have to get an absolutely screaming ripper of a price before we'd be prepared to let those assets go," he said.

"There are some assets that are very core to this portfolio and they almost define BBI in some regards.

"I'm not saying that if someone came along with a ridiculously high price for them or could do it quickly...the board has to look at that. But that's not the intention going forward."

In addition to its operating power stations, BBP also has a number of new power projects currently being developed.

BBP, through its joint venture with ERM Power, has a 70 per cent stake in the NewGen Kwinana 320 megawatt gas power plant, currently under construction, and a 50 per cent stake in the Neerabup 330MW plant, also under construction.

ERM Power managing director Philip St Baker said the company was committed to successfully completing both the Kwinana and Neerabup projects, with or without Babcock & Brown as a JV partner.

"ERM Power is the lead developer, project manager and joint owner of the Kwinana and Neerabup power station projects," Mr St Baker said.

"Construction of both the Kwinana and Neerabup power station projects remains on schedule, on budget and is proceeding according to plan.

"Should Babcock & Brown choose to sell their stake in the Kwinana and Neerabup assets, ERM Power will look to take advantage of our pre-emptive rights to purchase."

Babcock & Brown is also a 40 per cent partner in the development of a new $110 million biomass plant in Manjimup.

Senior planner Rebecca Hollet from Connell Wagner, consultants on the project, said the project appeared to be tracking on schedule.

"As far as we're concerned we're still progressing towards achieving all environmental approvals to start construction later this year," she said.

Rounding off its energy assets in WA is the Alinta wind farm near Geraldton, owned by Babcock & Brown Wind Partners (BBW).

While BBW has not yet indicated that the Australian assets are under review, a review of its European business has already resulted in the sale of its Spanish assets, with the sale of assets in Germany, Portugal and France expected to follow.

Babcock & Brown Communities (BBC) owns Fini Villages, which has nine retirement villages in WA.

BBC bought Fini Villages in August 2007 for $180 million.

BBC has indicated that a number of non-core assets and land sites have been identified for sale and will be executed over the coming months, and will update the market when it releases its full year results this week

Babcock & Brown Residential Land Partners has interests in four WA residential land subdivision projects in Forestdale, Banksia Grove, Meve and Dongara, through its 50 per cent stake in PRM Property Holdings.


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