Powerco Sale Raises Funds For Bbi

Sydney Morning Herald

Wednesday November 5, 2008

Scott Rochfort

CASH-STRAPPED Babcock & Brown Infrastructure is set to receive a much-needed injection of funds, after selling half of its interest in New Zealand's third largest power and gas utility Powerco.

BBI announced yesterday the Queensland Investment Corporation (QIC) had agreed to buy a 50 per cent equity stake in Powerco for $NZ400 million ($351 million).

The deal comes two months after BBI, like several other debt-laden infrastructure funds, indicated plans to cut its debt via asset sales and by no longer funding distributions from debt.

But aside from the half-sale of Powerco to ease BBI's debt load, the company said the premium paid for the asset vindicated the valuation BBI has on all of its assets.

"We've sold an asset at a good price in pretty tough market conditions," said BBI's chief financial officer, Jonathan Sellar.

The company said the transaction put an enterprise value of $NZ2.05 billion on Powerco, which was valued at $NZ1.8 billion on its books.

Mr Sellar said the sale displayed the strong underlying and defensive value in BBI's power, ports and rail assets. "It confirms the underlying value of [infrastructure] assets has not fallen off a cliff," he said

BBI shares rose 4 cents to 22.5 cents but are still down 86 per cent from their December peak.

The sale, due in the first quarter of next year, will reduce the risk in the $250 million BBI needs to refinance of its $2.4 billion of corporate debt by February.

The Powerco deal is subject to approval from the NZ Overseas Investment Office.

BBI hinted it could make another sale before the end of the year, stating it would make an update on the planned "co-investment and partnering process" for its European ports and WestNet Rail businesses by the end of December.

By bringing in co-investors, BBI has sidestepped having to raise capital from its shareholders at a time when its share price is at all-time lows.

Co-investors also have the comfort of having a direct interest in the assets without having their money tied up in the Babcock & Brown satellite. This allows them not only to have a say in the management of the assets but also access to the cashflows of each business.

QIC Infrastructure's head of global infrastructure Ross Israel in a statement to the market said the long-term nature of the asset was a "good match for superannuation funds".

© 2008 Sydney Morning Herald

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