The announcement of a short-term $150 million loan sent shares soaring in early trading before they settled back down to close at 39, still up 56 per cent, or 14.
The stock, which emerged from a two-week trading suspension, at one point had more than doubled to 57 as a very heavy volume of more than 41 million trades went through. Shares hit nearly $35 last year but have collapsed since then because of the credit crunch.
The loan, which must be repaid at the end of next year, will cover immediate cash flow needs and allow the company to convert all interest owed to lenders to a "pay if you can'' basis. All financial covenants on two corporate loan packages have been suspended.
Babcock also said it would halt dividend payments and consider a recapitalistation and restructuring through a debt-for-equity swap.
"We remain focused on reducing debt levels while managing the business to meet our obligations and preserving the value of our assets and funds management platform,'' chief executive Michael Larkin said.
"We will continue to seek to maximise value for all our shareholders through an orderly asset sale process which is expected to take place over the next two to three years. During this transition period there may be significant volatility in the earnings base of the business.''
A plan to avert collapse would be in place by January 9 and a more detailed restructuring scheme presented to lenders by February 28, Babcock said.
The company must repay $3.1 billion by 2011 to a group of about 25 lenders, including Australia's big four banks and the Royal Bank of Scotland.
The crisis came to a head last month when one creditor - believed to be Germany's HypoVereinsbank - froze a deposit worth up to $140 million held on behalf of Babcock against debt owing.
The Sydney-based firm plans to salvage its infrastructure portfolio, which includes real estate, ports, power stations and wind farms. Other assets will be sold and lay-offs will slash the company's workforce almost in half to 600 within two years.
Analysts said the banks were motivated to keep Babcock afloat so that asset sales would generate better returns once economic conditions improved. That was preferable to a fire sale now should the company be allowed to collapse.
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