AUSTRALIAN INVESTMENT fund Babcock Brown Capital (BCM), Eircom's immediate owner, will review its share buyback programme this week in light of an abrupt loss of investor confidence in its manager, investment bank Babcock Brown.
Babcock, which owns about 8 per cent of the fund, reiterated the position yesterday that BCM has no plans to sell Eircom and will hold the company for the medium term.
"We are not selling at the moment and it's business as usual at Eircom," said a spokeswoman.
This stance is at odds with that of certain Dublin observers who say the combination of BCM's weak share price, which implies a market capitalisation of A$583.1 million, and a likely review of A$2.8 billion of Babcock's debt could push the fund towards a sale of the telco within the next year.
Babcock's share price more than halved last week amid heightened investor concern about its extensive debt and the viability of its business model. The bank manages a large portfolio of debt-heavy investment funds on the Australian stock market, BCM among them, and it has publicly apologised to shareholders for the poor performance of those funds.
Babcock is meeting its banks and accelerating a strategic review of the funds, with the objective of removing "the gap between the underlying asset values and the current trading prices".
Having abandoned plans after the completion of its own investment review to make A$445 million in new investments, BCM has allocated A$300 million of its money to buy back 50 per cent of its own stock and has to date spent A$115 million on that process.
BCM's independent chairman Kerry Roxburgh told the Sydney Morning Herald that there was nothing untoward with a sharp increase in the buyback rate last Wednesday when the fund spent A$20.4 million on its own shares.
Stating that the BCM board will review its capital management programme this week in light of the turbulence, he rejected speculation that BCM increased its buyback activities in an effort to prop up its share price.
The buyback activities reflected only trade in the stock, he said, adding that BCM was not approached by any investor who wished to sell shares into the buyback off market. Mr Roxburgh spoke to the Sydney Morning Herald before Babcock chief Phil Green said in a statement the bank will "move as quickly as possible to restore investor confidence in a decisive yet orderly manner".
Babcock expects to receive indicative offers for its European wind farm assets this week and hopes that the disposal of these assets, which could fetch some A$2.5 million, will strengthen its balance sheet. Babcock's market capitalisation of A$1.75 billion is well below the A$2.5 billion threshold which can trigger a debt review.
Babcock said a decision on whether to proceed with a review "may take some time", in line with normal banking syndicate processes.
- (Additional reporting: Bloomberg)
