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Babcock & Brown Shares Sink on Debt Review Worry

Shares of Australian investment firm Babcock & Brown plunged 25 percent to a three-and-half-year closing low on Thursday amid concerns that a fall in its market value could trigger a review of its debt covenants, fund managers said.

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Rob Griffith

Babcock & Brown's lenders had extended a A$2.8 billion ($2.6 billion) debt facility in March to April 2011, but reserved a right to review the facility if Babcock & Brown's market capitalisation fell below A$2.5 billion.

At Thursday's low of A$7.70 per share, Babcock's market value stood at A$2.6 billion and fund managers said short sellers were betting on fall below the critical value.

"Probably hedge funds are selling down to trigger their market cap review provision on their debt. Obviously, there is little bit of loss of confidence in the vehicle with some of the refinancing issues in the satellite," said Sean Fenton, a fund manager with Jenkins Investment Management.

Babcock & Brown was not available for comment.

Babcock & Brown shares closed down 25.42 percent while the broader market finished 2.2 percent lower.

Shares in other listed funds managed by Babcock & Brown also fell, with Babcock & Brown Power plunging more than 30 percent, while Babcock & Brown Infrastructure fell 16 percent.

Fenton said a review would not necessarily led to an immediate pull back of loans, though lenders could seek more details on Babcock's operations.