Nov. 19 (Bloomberg) -- Babcock & Brown Ltd., the worst performing stock on the MSCI Asia-Pacific Index this year, will accelerate job cuts and separate its businesses to avoid defaulting on A$3.1 billion ($2 billion) of debt.

The Sydney-based owner of wind farms and properties plans to reduce headcount by almost two-thirds to 600 by 2010 while it renegotiates debt agreements with bankers, it said in a statement today. The stock dropped 19 percent to 25 Australian cents at the close in Sydney, extending declines this week to 48 percent.

Babcock has lost 99 percent of its market value this year as it fights to avoid the fate of Allco Finance Group Ltd., a Sydney-based manager of infrastructure funds that collapsed this month. Analyst John Heagerty at ABN Amro Holding NV predicts Babcock may breach loan agreements because the credit crisis has made it harder to sell assets.

``They're trying to do everything they can to keep the banks on board, because without their acquiescence it's all over,'' said Richard Wallace, who helps manage about $100 million at Sydney-based Wallace Funds Management. ``The restructure will come to naught unless they can sell assets, and in this market you won't get anything approaching book value for at least the next six months.''

Standard & Poor's today cut its rating for Babcock & Brown International Pty, a wholly owned unit of the asset manager, to CCC+. S&P defines a CCC company as which is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions.''

`Significant Challenges'

``Given the global financial market conditions, and Babcock International's recent experience, we believe that the company is likely to face significant challenges in selling its assets and businesses, and consequently reducing its debt at the corporate level,'' the rating company said in a statement.

Babcock & Brown Infrastructure Group, a fund managed by Babcock & Brown, said today it is examining the potential sale of as much as 49 percent of Australia's second-biggest coal- export harbor after drawing interest from potential bidders.

The company, which said it will ``only look to sell down if the price is right,'' on Nov. 5 warned that divestments are ``extremely difficult.''

Babcock & Brown said it is separating the existing infrastructure investment business from the assets the firm is trying to sell to fund repaying half of the A$3.1 billion in loans by 2011.

Interest Cover

Wachovia Corp. may seize collateral on a $112 million loan, Babcock said this week, putting it at risk of losing as much as $41 million on a real estate venture with GPT Group.

Wachovia's warning came even as Babcock announced the sale of its Enersis wind energy business in Portugal for about 1.15 billion euros ($1.45 billion). Proceeds of A$285.8 million from that sale won't go toward fulfilling an agreement made in June with lenders to repay A$400 million.

Babcock's interest cover ratio -- a measure of its ability to repay debt -- was 5.3, the company said in June. That exceeds the 3 times ratio required by its bankers. Total interest bearing debt stands at A$9.6 billion.

Babcock agreed to pursue asset sales to cut debt on June 30 after its market value slumped below a threshold that allowed bankers to start reviewing the company. It was also forced to pay an additional A$10 million a year in interest.

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

Last Updated: November 19, 2008 01:05 EST