Babcock shares dive for second day on debt worry

By Denny Thomas

SYDNEY (Reuters) - Australian investment firm Babcock & Brown (BNB.AX) lost a quarter of its value on Friday as investor concerns mounted about the company's debt and ability to raise funds, taking losses to almost 50 percent in three days.

The share price fall followed a 28 percent tumble on Thursday that pushed the company's market capitalisation below a level that triggers a creditor review of its debt agreements, sparking concern that Babcock may become the latest Australian victim of the global credit crunch.

Babcock has said that reaching the review limit does not mean it would have to repay or speed up repayment of its roughly A$2.8 billion (1.3 billion pounds) in debt, due by 2011. But analysts said investors are still concerned about the future of the company if it is starved of cash.

"If you are one of their banking syndicates now, you certainly are not going to be thinking of advancing (them) any more money," said Tom Elliott, a portfolio manager with hedge fund MM&E Capital.

"For a finance house, suddenly all avenues of funding have largely been chopped off, which is bad for their business," he added.

Babcock's lenders will meet next week to decide whether to call for a review, a company spokeswoman said.

Under its business model, Babcock buys infrastructure assets, such as ports and power plants, and bundles them into listed and unlisted funds to earn management fees. The model, also used by bigger rival Macquarie Group (MQG.AX), is heavily reliant on debt funding to buy assets and boost revenues.

UBS said in a report that a break-up or a management buyout of Babcock & Brown could not be ruled out.