BNB/FMG

Sydney, Dec 2, 2008 (ABN Newswire) - Struggling investment bank, Babcock & Brown expects to be able to make an announcement on discussions with its banks by tomorrow.

Babcock & Brown said in a statement to the ASX yesterday that it had asked for an extension of a voluntary suspension in the trading of its shares while continuing discussions with its banks over a short term funding facility.

BNB is trying to either retrieve or replace a $140 million deposit that's been seized by one of its lenders, the German bank HVB. The deposit is held by HVB's Dublin subsidiary.

The shares will remain suspended as Babcock negotiates with its 25-company banking syndicate for a short-term loan.

Babcock expects to make an announcement on the matter by tomorrow. The Australian banks in the syndicate are considered to be amendable to advancing BNB more money because they don't want to trigger a collapse that might see billions of dollars in debts suddenly crystalise into possible losses.

Babcock says it will cut costs, staff and sell assets to repay $3.1 billion in loans.

Babcock shares have lost 99% of their value this year; they traded at 25 cents on November 19 when they were suspended because of the problems with the German bank holding the deposit.

US bank, Wachovia Corp on November 17 said it may seize collateral on a $US112 million loan. That remains unresolved.

OZ Minerals meanwhile had its shares suspended until December 29 to allow it and its banks to sort out a funding and loan impasse generated by one bank. 

And Fortescue Metals shares went for a big unexplained run yesterday on talk of possible corporate activity.

The market snouts talked of a China company, BHP or even a company from troubled Russia (where the billionaires are now just millionaires and have no money).

The shares jumped 40% to a high of $2.93 before easing back to end at 2.50, up 44 cents or 21.3%.

That was in a market off around 1.6% on selling of resource stocks like BHP Billiton and Rio Tinto.

Fortescue said in a reply to an ASX query that it did not know what was driving the sudden share surge.

"The company does from time to time hold discussions with industry entities regarding product supply and investment opportunities which are confidential in nature and there are none that are progressed to a level that could be considered complete,'' it said.

Speculation centred on either Chinese interests taking a stake in Fortescue or BHP making a takeover bid for the firm, having dropped its bid for Rio Tinto last week.

Those stories neglected the very poor figures on the health of Chinese industry yesterday, which clearly shows manufacturing and other secondary industry are stagnating with demand low. 

Chinese company are cutting purchases and conserving cash, not blowing it on takeovers of Australian firms.

The best explanation was that some recent selling had finished, with short sellers being forced to cover their sales yesterday when the shares started rising.

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