Published April 1, 2009

When shareholders could have been spared the agony...

By EMILYN YAP

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REALLY? That must have been the immediate question of disbelief that many investors were asking when Singapore-listed Babcock & Brown Global Investments (BBGI) first assured them that the company was safe despite the voluntary administration proceedings faced by Australian-listed Babcock & Brown Limited (BBL).

Why the initial scepticism on the part of investors? To a large extent, it has something to do with the common 'Babcock & Brown' name of both companies. But, more important, their worry could have been spared - if only BBGI had explained more in its initial comments on the BBL news. It was commendable that BBGI had responded promptly to the news on March 13, but the pity was that the response was just a two-paragraph statement that said little about why repercussions were 'not expected' when there appeared to be a name link.

The term 'voluntary administration' was also alien to many investors. Even after BBGI followed up with more detailed statements on its situation six days later, investors with no access to Australian news reports or professional advice would still not have known what the process meant.

It would help to first understand what voluntary administration entails. The process usually happens when a company is insolvent or deemed insolvent, and an external administrator has to step in to investigate affairs and recommend an exit strategy for creditors.

As a partner at law firm Shook Lin & Bok LLP, Robson Lee, explained, the parallel applicable course of action would be judicial management under the Singapore Companies Act here, or Chapter 11 proceedings in the United States. Administration provides companies 'with a period of moratorium protection', during which creditors cannot take legal action to wind up or sue the companies, he said.

In BBL's case, voluntary administration came about after investors in its New Zealand-listed subordinated notes voted against a proposed restructure of the notes. The company has not been liquidated, though this could be an option. Its administrators may conclude that it is possible to derive more returns from the business compared with an immediate winding up.

Debt-laden BBL is one of the latest victims of the credit crisis - it has gone through business and debt restructurings since last year and its shares have been suspended after plunging more than 90 per cent at one point.

With the situation looking dire for BBL, why would BBGI not be affected then? Herein lies the key: although they share the same Babcock name, BBGI comes under another entity separate from BBL.

BBGI's manager is Babcock & Brown Global Investments Management Pty (BBGIM), which comes under Babcock & Brown International Pty (BBIPL). The troubled BBL has no claim over BBIPL's assets, the latter's spokesman said.

'BBL and the BBGI group have separate ownership, boards of directors and legal structures,' said a BBGI statement on March 19. This is the critical statement that should have been, but was not, included in the March 13 release. The explanation of the relationship would have given BBGI investors greater peace of mind.

More pertinently, BBL's voluntary administration has no impact on BBGI's solvency. BBGI used to rely on the Babcock and Brown group for acquisition opportunities but it is now looking to delink from the group and change its name.

Still, the case highlights one difficulty faced by many investors - trying to understand investment in large or complexly structured companies which operate mainly in other countries and under different regulatory frameworks.

What such companies should do, especially when major events unfold, is to piece all relevant information together for investors quickly so that they can make an informed decision about their holdings. BBGI could have saved investors some anxious moments had it been more explicit in its disclosure right from the start.