Shares in Eircom owner Babcock & Brown Capital lost 10.54 per cent on the Australian stock market after the investment fund said it would record a loss of up to €100 million from the Irish company to pay for 900 redundancies.

While staff will leave Eircom over a three-year period, Babcock said yesterday it would make a provision for the entire programme in forthcoming accounts for the year to June. The figures will be released on August 28th.

Though adverse in the short term for Babcock's finances, such a manoeuvre means no future liability for the redundancies will be outstanding in Eircom's books if the fund moves ahead as expected to split the company's retail and network units and sells the retail arm.

Babcock previously said Eircom would contribute a minimal bottom line profit of up to A$5 million (€3.05 million) for the year. The fund reversed that forecast yesterday to say Eircom's contribution to its result is now expected to be a net loss after tax in the range of A$150-A$165 million.

"Eircom expects to recognise a redundancy provision for the full 900 employees in its 30 June 2007 accounts. After tax, this is expected to reduce Eircom's earnings by between €130 million to €145 million [A$215-A$240 million]," the fund said.

It said the "voluntary leaving" programme would have an additional impact on pension costs, but said the charge would not exceed €30 million.

Babcock & Brown Capital owns 57.1 per cent of Eircom and associates of its ultimate parent Babcock & Brown - including Eircom chairman Pierre Danon - own 7.9 per cent of the business. The Eircom employee share ownership trust (Esot) owns 35 per cent of the telco.

Babcock acknowledged in a stock exchange statement that the provision for the redundancy programme was unfavourable for its forthcoming results, but said the initiative would "significantly reduce operating costs" and would be "value-accretive" in the medium and long term.

"Babcock & Brown Capital estimate the average payback period on these costs to be approximately 2.5 years," it said.

There was no comment on the development from Eircom headquarters in Dublin.

The shareholder agreement between Babcock and the Esot is known to anticipate a formal separation of the business.

In advance of that process, Babcock is exploring the possibility of offering the Government a minority stake in its telecoms network in return for control over the State-owned Metropolitan Area Network (MANs) broadband system.

The alternative is to make a cash payment for control over the MANs system.