Dear Stephen,

Your various comments on ABC radio and through the Crikey site last Friday [as well as in The Mayne Report] (13 June 2008) are both inaccurate and unduly alarming for investors who look to commentators such as you for informed insight and guidance. Below please find our concerns with comments published by you in your “Mayne Reporters” note of the same date. These comments largely cover the key concerns we have with your comments on the same subject on Richard Glover’s ABC radio program.

“…impending Babcock & Brown collapse”: You have no proof to support such an alarmist statement as none exists. The market capitalisation clause in the corporate debt facility does not constitute a default or breach of covenant; and assets at both the Babcock & Brown Limited level and across the group of independently listed or wholesale funds substantially exceed individual entity borrowings.

“….the banks seemingly in control”: The BNB ASX statement issued Thurs 12 June makes it very clear – under the market capitalisation threshold clause (ie where BNB market cap is below A$2.5 billion or currently A$7.50 per share), the banks have no right, other than to consider whether they should call for a review. If a review is called there is a four month discussion period with Babcock & Brown about whether any course of action is required, if at all.  If at the end of the four months, the group’s market cap is above the threshold level, the “event” is automatically cured. At the time you made your statement, the banks had not exercised their right to call for discussions and they have not done so to date. Your statement creates a false impression of the position with our banks and is unduly alarming to investors.

“What happens to all these contracts with the banks seemingly in control…”: As noted below, Babcock & Brown’s corporate facility banks are not in control of any PPP project with which Babcock & Brown is involved. All the transactions are funded with long term debt with recourse only to the particular asset for which the debt has been provided. There are no guarantees from Babcock & Brown nor have the assets been used as security by Babcock & Brown for unrelated transactions. That is, there is no way that the current market volatility of B&B can entitle any lenders to “take control” of these PPP projects.

Further, Melbourne Showgrounds, Long Bay Forensic Hospital and Orange Hospital are owned by the LSE listed Babcock & Brown Private Partnerships (BBPP) and not Babcock & Brown. BBPP is a separate vehicle listed on the London Stock Exchange which has a strong independent balance sheet and structure (indeed recently completed a successful capital raising) and operates distinctively and separately from Babcock & Brown. It specialises in owning and managing public private partnership projects and has a market capitalisation of over GPB400 million, with interests in 40 separate projects, including 5 projects in Australia. It actively manages each of its investments and has a strong management team in each of the countries that it operates. Again your comments appear to us to alarm people more than accurately inform them.

“What the hell is a supposedly independent hedge fund doing lending A$432 million in related party deal to Babcock associates…”: EBI (the independent fund you refer to) has a clearly stated investment mandate that includes accessing “direct” investments. The investments you refer to are mezzanine debt loans, at market rate for mezzanine debt to specific projects and joint ventures such as those mentioned earlier secured in the normal way and involving other highly credible, clearly non Babcock & Brown related entities.

“Does that mean the $200 m unsecured loan from Babcock & Brown Infrastructure to a Babcock & Brown subsidiary..?”: This loan was not recorded as at 31 December 2008 as you reported, but six months earlier at 30 June 2008. It was a short term loan related to a transaction to which BBI was a party. The loan was repaid in full shortly after 30 June 2008 at market rate of interest.

You also made indirect comments about the independence of the Babcock & Brown Chair, Elizabeth Nosworthy. We reject any suggestion as to lack of independence. Ms Nosworthy is a highly respected corporate lawyer and independent board member of several leading Australian corporations and community organisations. Her integrity is beyond question.

Babcock & Brown has already responded to the inferences made by others concerning political donations in NSW being tied to the Killalea development. Babcock & Brown makes donations to both the NSW Labor and NSW Liberal parties and in some cases these donations relate to a specific dinner or lunch function so it’s completely misleading to try to tie donations to the unrelated Killalea development. It is also worth noting that the Killalea development is undertaken through KCI, a joint venture between Babcock & Brown and Mariner and this joint venture has not made any political donations.

With regards to Killalea, Babcock & Brown responded to a tender from the state government who were obviously keen on progressing the project. At the moment we have no development application submitted and there is no approval in place so to tie political donations to this is a complete nonsense.

In the interests of balance and fairness we request that you publish this letter in the same places that your comments were made last Friday.