5 July 2002 – Babcock Borsig AG, the German power engineering and shipbuilding group, announced today that it was forced to file for insolvency due to legal reasons. Babcock, which employs 22 000 people, needs to raise €200m by Thursday and a further €500m in the medium term to pay its creditors.
In an official announcement the company said that intensive negotiations were underway to reach an agreement on the restructuring plan. Should this attempt succeed, Babcock said it would be able to withdraw the insolvency application “and thereby avoid negative effects for the company.”
The talks, held under the chairmanship of state premier Wolfgang Clement, are with the main banks and shareholders of Babcock Borsig AG and focus on devising a funding model for restructuring the Babcock Group. The talks were adjourned during the night and are continuing today.
The stage reached so far in these talks is such as to enable the company to continue its restructuring efforts for the time being.
But analysts were sceptical about the group’s apparent reliance on a state bailout. “It doesn’t look as if there is a simple solution,” said HSBC Trinkaus & Burkhardt analyst Dirk Lohmannin Duesseldorf. “The politicians have given a clear signal that they would support it, but the banks are still wavering.”
On Thursday, German Chancellor Gerhard Schroeder vowed to inject government cash if necessary to save Babcock, which traces its history back 111 years.
Mr Schroeder’s image has been damaged by a string of high-profile companies suffering serious cash crunches. They include the collapse of the Kirch media empire and the cash flow problems suffered by the aircraft maker Fairchild Dornier. The corporate scandals have come at a bad time for Mr Schroeder who is facing an election in September.
Babcock’s difficulties have been around since the early 1980s when its struggle to return its operations to sustainable profits began. But its problems have mounted ever since it pulled out of submarine making in March to focus on the energy sector.
Investors, who voiced concerns over the move, were again spooked in May when Babcock said the restructuring would cause a net loss of €100m in the year to September.
In response to the announcement, Austria’s VA Tech group, which holds a 10 per cent share in one of its affiliated companies, Babcock Borsig Power GmbH, has decided to devalue its holding by an unspecified amount. VA Tech said the devaluation would have no effect on the liquidity and operative earnings of the company but that it will, however, be reflected in the investment result.
Babcock Borsig also issued a statement refuting certain newspaper articles concerning its holding HDW. “Babcock Borsig AG has still not made any decision on the question of selling the remaining 25 plus 1 share in HDW and, if so, to whom. Such a decision runs counter to both an injunction of the Duisburg regional court and the company resolution whereby the sale of the investment is to be voted on at an extraordinary shareholders meeting,” said the statement.
Babcock’s shares have lost 90 per cent of their value since March.