THE AUSTRALIAN investment bank that orchestrated the takeover of Eircom in 2006 by one of several listed investment funds that manage infrastructure and other assets has apologised to its shareholders for the poor performance of those funds.
Babcock Brown – which owns a minority stake in Eircom and whose affiliate Babcock Brown Capital owns 57 per cent of the company – has initiated a review of its stable of funds amid a loss of investor confidence that has led to a sharp deterioration in their share prices.
In addition to Babcock Brown Capital – whose major partner in Eircom is the Eircom Employee Share Ownership Trust, which owns 35 per cent of the business – the bank’s funds have investments in power and energy transmission, wind power, public infrastructure, rail and other asset classes.
According to Australian media reports, chief executive Phil Green told Babcock Brown’s annual general meeting (agm) yesterday that the combined market value of these funds was trading about A$120 million (€73.69 million) below their book value.
The bank’s review of the portfolio comes three months after Babcock Brown Capital decided to stop making new investments, in spite of a commitment some months earlier to pursue “specific identified investments” with a cash pile of some A$445 million (€273.32 million).
Apart from Eircom, that fund’s only other asset is the Golden Pages phone directory in Israel. Instead of making new investments, the fund is buying back up to 50 per cent of its shares.
But having failed so far to advance proposals to split Eircom’s network division from its retail business, the fund recently raised the prospect of selling the company to an European incumbent telco in the medium term as an alternative to a split.
“It’s as disappointing as can be that, despite sound underlying performances, the share prices of both Babcock Brown and our listed funds have come down in recent months as significantly as they have,” bank chairman Jim Babcock told the agm.
“All of us at Babcock Brown are very much aware that loyal Babcock Brown shareholders have suffered material financial hardship as a result of this decline in share prices. From my own perspective, this is particularly painful in the case of the listed fund shares.”
Mr Babcock said “macro factors well beyond our control”, including the credit crunch, were major factors, but acknowledged that the bank did not deal with at least some of its challenges “as effectively as our investors should be able to expect of us”.
Mr Green is reported to have left all options on the table when pressed by a shareholder activist to abandon the existing model of external management and move to internally managed infrastructure funds.
“The issue is not one that we are ignoring or that we have not seen coming and we will be looking at how we approach it, whether it be to just work harder at the current model, internalise, privatise – whatever the appropriate [approach],” he said.
