Babcock & Brown scales back orders in first UK listing

The Australian investment firm raises ú300 million from the listing of its public partnerships fund.
Sole placing agent UBS has generated enough investor demand to allow Babcock & Brown to raise ú300 million ($570 million) from its first foreign listing, a public infrastructure fund containing 22 assets. The amount was at the top end of Babcock & BrownÆs expectations.

Subscription results were announced by UBS on Monday, with the company due to start trading on the London Stock Exchange tomorrow (November 9).

Babcock & Brown says orders for the ordinary shares priced at 100 pence each were received from a mix of institutional and retail clients mostly hailing from the UK, Europe and the US. Kelly Hibbins, the firmÆs head of investor relations, says there was also some interest from Australian investors, but not much.

ôAustralian infrastructure funds trade on higher yields than those in other parts of the world, so local investors werenÆt that interested,ö she says, speaking from Sydney. ôThe fund was pitched to investors in the UK and Europe. Most of the projects in the fund are located there anyway, so it makes sense.ö

Hibbins says the issue was oversubscribed, with ôsome scaling back of investorsÆ ordersö taking place. Babcock & Brown itself subscribed to 25 million shares.

The Babcock & Brown Public Partnerships fund expects to yield 5.25% in its first full financial year based on the 100 pence issue price, while aiming to produce an internal rate of return of 8% to 9%. Australian infrastructure funds pay an average dividend of 8% per year.

The fund, with a mandate to focus on public-private partnerships, will be seeded with ú187 million worth of assets including equity in three Australian and 13 UK projects. The assets include schools, courts and health facilities developed under public-private partnerships with Australian states and private finance initiatives of the UK government. The fund will also hold subordinated debt in six projects developed under the UK National Health ServiceÆs LIFT programme. Babcock & Brown will remain manager of the assets and will receive a management fee from the fund.

The rest of the money raised from the float will be put in a cash-box and go towards future acquisitions.

UBS acted as sponsor and sole placing agent on the offering, building on its long-standing relationship with Babcock & Brown. In 2004, UBS executed the firmÆs highly publicised and sought-after IPO, raising A$550 million.

The listing of the public partnerships fund is welcomed by analysts who follow Babcock & Brown because it reduces the firmÆs reliance on principal investments as a source of income. In the early-1990s, the firm made most of its revenue by investing its own capital in infrastructure projects but recently it has focused on building annuity-style income streams.

In the first half of 2006, the firm generated A$157 million in revenue from principal investment activity, A$45 million from other operating income and A$60 million from co-investment income. ôThe rising contribution from co-investment and other operating income is a pleasing sign given this represents more stable annuity-style revenue,ö says Andrew Hill, a research analyst at Deutsche Bank in Sydney. ôWe expect the contribution from co-investment to grow further as the specialist fund rollout continues.ö

Fund roll outs include a retirement and aged care industries fund in Australia, a European social infrastructure fund, a European property fund, a US infrastructure fund, a power generation fund, a structured finance fund and potentially an overseas wholesale private equity fund.

Babcock & Brown has an existing cash-box in Australia called Babcock & Brown Capital. This fund listed on the ASX in February 2005 raising A$1 billion at an issue price of A$5.00 per share paid in two equal instalments of A$2.50. The shares have traded flat since, closing at A$4.22 on Tuesday (November 7), off a year high of A$4.78.
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