The Royal Bank of Scotland (RBS) has submitted a recapitalisation proposal to Babcock & Brown Infrastructure (BBI) on behalf of a group international hedge funds, BBI said today in a statement.
The disclosure comes just days after the firm halted trading of its securities on the Australian Stock Exchange.
RBS proposes repaying A$1.2 billion (€0.7 billion; $1 billion) of BBI’s corporate level debt facilities by issuing A$600 million of new convertible and redeemable bonds, issuing a new A$350 million corporate debt facility and raising A$400 million of new equity.
Half the equity would come from BBI’s existing shareholders. BBI did not disclose the identity of the other potential equity investors, but it said that it is a group “comprising primarily international hedge funds”.
The Australian Financial Review newspaper has reported that New York-based hedge fund Och-Ziff Capital Management is among the investors.
BBI said that, post-transaction costs, the new equity raised under the RBS proposal “will not materially change” the current debt levels of BBI “or address the near term debt maturities at the operating business”.
The firm has A$2.7 billion of debt in 2010 and 2011, including A$300 million which is due in February of next year. In total, the firm had A$9.1 billion in total proportionate debt as of the end of June and A$1.2 billion in corporate level debt facilities.
BBI said “certainty and timing of execution is also an important consideration for the BBI Board given the timing of upcoming maturities”. At this time, BBI it is unsure whether the RBS proposal can “legally and commercially” be executed but it is seeking clarification and additional information from RBS to determine whether the proposal is superior to the one it already has on the table.
A previous proposal, which had also led to BBI suspending its shares earlier this month, involved a potential cornerstone investor entering the business. It had been reported that Toronto-based Brookfield Asset Management was to be that cornerstone investor.
According to The Australian newspaper, the RBS proposal improves the proposal submitted by the cornerstone investor by A$500 million. BBI didn’t dismiss this claim, but said that it relied “on there being . . . a substantial re-rating in the trading prices of BBI securities”.
BBI warned investors that either proposal may attribute a value to its securities below BBI’s recent trading levels. BBI’s shares most recently closed on A$.051.
Gresham Advisory Partners Limited is advising BBI on evaluating the recapitalisation proposals.