Ifm To Keep Us Deal Alive

The Age

Saturday February 23, 2008

Danny John and Stuart Washington, Sydney

INDUSTRY Funds Management is fighting to keep the acquisition of 29 power stations from US energy giant Con Edison alive in the wake of Allco's severe financial difficulties.

The Australian superannuation fund, a partner of Allco Finance Group in the $1.47 billion deal, is believed to be looking for a co-investor or could even go it alone to ensure that the purchase, announced by Allco in early December, goes ahead as planned.

Allco has indicated to its bankers that it is unable to proceed with its contribution to the purchase, given the extent of its funding woes.

Under the terms of the deal agreed with Con Edison, Allco had agreed to contribute $US287.3 million ($A311.8 million) in equity and a further $US440 million in debt financing towards the total purchase price.

In return, Allco took a 37.6% stake in the new company, Northern American Energy Alliance (NAEA), that was created to own the Con Edison power plants in New Hampshire, Massachusetts, New Jersey and Maryland. The remaining 62.4% was allocated to IFM, which has $14.5 billion under management.

However, the financing of the deal has put extra stress on AFG just as it struggles to cope with $6 billion of debt, which has increased investors' concerns about its ability to meet its loan commitments and resulted in a huge sell-off of its shares.

The latest developments surrounding the Con Edison deal comes as an analysis by BusinessDay shows Allco's listed funds have about $7.8 billion in debt, all offset by substantial assets. This is on top of the debts held by AFG.

The additional borrowings are secured against assets in the funds and is non-recourse to the company.

But potential problems for Allco arise because more than $1.5 billion of these debts are termed current - that is, payable within the year - and most is payable by June 30.

Most of this amount lies inside its asset finance and property lending business, Allco HIT ($770 million), its money market and debt securities business, Allco Max Securities & Mortgage Trust ($100 million), and its Singaporean real estate investment trust, Allco Commercial Real Estate Investment Trust ($694 million).

The Con Edison deal has only added to these pressures. Apart from having to find the money for the new equity, Allco had been intending to take its share of the debt provided by Barclays Capital on to its balance sheet.

This was then due to be transferred to Allco's proposed unlisted energy infrastructure fund later this year, which would have also owned the group's share of NAEA.

But that plan suffered a severe setback when Allco had to abandon the launch of its flagship global asset fund last month, after the keystone investor pulled the plug on taking a $200 million stake in it because of the turmoil on the sharemarket.

Con Edison told BusinessDay this week it was "closely monitoring" the financial developments surrounding Allco's troubles. An IFM spokesman declined to comment yesterday.

© 2008 The Age

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