Decision expected on Babcock Borsig rescue

8 July 2002 – A decision on whether main lenders to Germany’s Babcock Borsig will back a government supported rescue plan is expected this week. The engineering group filed for insolvency on Friday but has been in discussions with lenders in the hope that the filing can be withdrawn.

Germany’s central government and the state of North-Rhine Westphalia have agreed to provide credit guarantees worth €430m ($426m) to underpin the €750m bail-out plan. Babcock ‘s existing shareholders would be invited to subscribe to a €200m capital increase along with more than €500m from the banks.

Some lenders are reluctant to back the rescue – a mixture of new loans and fresh capital – at a time of rising provisions from bad loans. Commerzbank and HypoVereinsbank, already heavily exposed to the collapse of the Kirch media empire, are said to be particularly hostile.

The regional government reported that no progress had been made with creditors over the weekend but that the banks could be issuing a statement as early as today.

In return for the rescue package the company would be expected to undergo a radical restructuring with personnel cost cutting of at least €50m immediately.

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