Dec. 4 (Bloomberg) -- Babcock & Brown Ltd. today received a A$150 million ($97 million) loan, giving the troubled Australian investment manager more time to sell assets and boosting its bankers’ chances of recouping A$3.1 billion of debts.

Babcock’s shares jumped as the loan kept alive its battle to avoid the fate of companies including Allco Finance Group Ltd., the Sydney-based manager of infrastructure funds that imploded last month. Babcock’s shareholders may still lose out as the Sydney-based company suspended dividends and said it may recapitalize via a debt-for-equity swap as part of a plan to appease its 25 bankers and stave off bankruptcy.

“There’s probably more in this deal for the banks than shareholders,” said Tim Morris, an analyst at Sydney-based investment advisory Wise-Owl.com, the only researcher to rate Babcock’s shares a “sell” at the start of the year. “The banks’ main motive is to keep it alive so they can raise more money from the asset sales when conditions improve. That may be better than seizing the assets and forcing a fire sale now.”

Babcock surged 56 percent to 39 Australian cents at the close in Sydney. The shares closed at 25 cents on Nov. 19, when they were suspended from trading amid speculation the company couldn’t repay its debts as the global credit crisis raised funding costs and cut asset values.

Even after today’s jump, Babcock is down 99 percent in 2008, the worst performer on the 1,695-member MSCI World Index.

Hard Sell

Babcock, which fed on cheap debt to buy property, ports and power stations, may struggle to sell assets amid the global credit crisis. Babcock & Brown Infrastructure Group, a fund managed by Babcock & Brown, said last month divestments are “extremely difficult.”

The new loan is priced at the 30-day bank bill rate plus 6 percentage points per year, Babcock said in a statement. That equates to 10.6 percent at today’s rates, compared with 8.99 percent for Commonwealth Bank of Australia’s standard variable business loan.

The financial covenants for Babcock’s two corporate loans have been suspended, and interest on the loans is payable on a “pay as you can” basis, as part of the new agreement.

Babcock also resolved a dispute with one of its bankers, which seized a deposit last month, it said today, without providing more details. German lender Bayerische Hypo- und Vereinsbank AG seized an account with A$140 million on Nov. 19, according to the Australian Financial Review.

Cautious Outlook

“What we’re seeing lenders doing is giving a stay of execution,” said Winston Sammut, who oversees the equivalent of about $49 million at Maxim Asset Management Ltd. in Sydney. “ “All it really does is buy them time. The trade-off for the banks and lenders is that they get another fee. They also shore up their security.”

The new loan, which is due at the end of next year, will rank ahead of Babcock’s existing corporate loans, adding another layer ranking above shareholders if the company should fail. Babcock suspended dividends, and said it’s considering a debt- for-equity swap as it seeks to recapitalize its balance sheet and develop a plan to avert bankruptcy by Jan. 9.

“Banks may be looking to take whatever equity is remaining in the form of a debt-equity swap, so the long-term outlook is very cautious for shareholders,” Wise-Owl’s Morris said. “The banks, too, may be pouring a lot of money into a black hole. The underlying problems remain: deflation of asset prices.”

Morris was part of a team that recommended investors sell Babcock shares on Nov. 21, 2007, making Wise-Owl the most accurate of the eight analysts that cover the company, Bloomberg data show.

Australia’s five biggest banks have A$700 million of loans at risk with Babcock, and overseas lenders, including Royal Bank of Scotland Plc, have almost A$2 billion on the line, according UBS AG estimates. Babcock had interest-bearing debt of A$9.6 billion as of Aug. 21, almost four times shareholders’ equity.

“At worst it buys the company a bit of time,” said Paul Xiradis, who manages the equivalent of $11 billion as chief executive officer of Ausbil Dexia Ltd. in Sydney. “At best it gives them at least some hope of working through their issues.”

To contact the reporter for this story: Stuart Kelly in Sydney skelly22@bloomberg.net

Last Updated: December 4, 2008 00:34 EST