Babcock & Brown Power Limited (BBP) said that after appointing UBS to conduct a strategic review it would proceed in assessing the potential sale of assets in order to recapitalise the business. The company said a significant number of parties were interested in all or some of its assets.
CEO Ross Rolfe told shareholders at the company’s AGM in Sydney the outlook for the power industry remained strong, with over $12 billion in new generation investments required over the coming decade.
Mr Rolfe reiterated BBP’s full year 2009 EBITDA guidance in the range of $350 million to $360 million.
He said the company would follow the advice given in the UBS review and suspend distributions in order to reduce debt because its gearing levels had increased to 74% at end of fiscal 2008 due to impairment of asset values.
Mr Rolfe said since then gearing levels had been reduced through asset sales to approximately 68%.
He said the decision was made given the priority of short-term debt repayments over the next 12 months to 18 months and the poor state of debt and equity markets.
Mr Rolfe noted that BBP was operating within all key debt covenants and had no equity or market capitalisation based covenants.
Chairman Len Gill said the directors adopted the UBS recommendation which recognised the application of cash flow to debt repayment as a priority compared to payment of distributions.
He said this was a more prudent and optimal utilisation of security holder funds in the current environment.
The UBS report also said it had been canvassing the market on a range of transactions, including the partial or full sale of BBP assets.
"Of course, the ultimate transaction structure and value will be influenced by capital market conditions and bidder appetite," Mr Gill said.
"It is likely that the release of the Carbon Pollution Reduction Scheme White Paper in December will drive timing of the process some time into the first quarter of the 2009 calendar year."
Following the explosion at its Varanus Island gas project in Western Australia in June BBP forecast to decrease fiscal 2009 earnings by about $18 million.
However, the company said the resumption of gas supplies from Varanus was proceeding in line with expectations.
BBP posted a $426.52 million loss for the 12 months to June 30.
At 1220 AEDT, shares in BBP were down 0.3c to 9.7c.
