Babcock & Brown Power (BBP) said it wrote down 410M AU dollars on its Alinta retail-energy business and recorded a large loss on the sale of a power station, according to the Wall Street Journal. The announcement triggered a 41% freefall in BBP's stock price and further damaged the credibility of the Australian-power generation fund, a listed satellite of Babcock & Brown Ltd (BNB).
This graph of BBP also demonstrates how the ASX Small Cap stock's price has plummeted this year - down from $3AUD in October 2007 to $0.5AUD now which should have given short investors an opportunity to make sizeable profits. However, rather like yesterday's posting on Coeur d'Alene Mines (CDE), this short has been badly timed and, moreover, this is also a Small Cap stock which means it is more difficult and expensive to borrow - a costly mistake for short sellers. Investors held 12% of BBP's Market Cap on loan (%MCOL) in August 2007 when the share price was at $3AUD, but then closed out positions dramatically when the share price started to drop, when in fact they should have either increased their positions in the company or held the same %MCOL. In fact, the %MCOL dropped down to 2% between October and January 2007, only to rise again to 8% in March (as the share price rose again) and then back down again to 2% in May, up to 6% in late June and then down again to approximately 4% over the past two weeks. This has all been in conjunction with the fall in share price. The more recent increase in positions is teamed with yet another fall in share price as The Wall Street Journal said, which could mean that this time, short sellers have got the timing right.