BABCOCK & BROWN

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6. risk factors 6.2.19 Inflation risk Depending on the anticipated cash flows from an investment, investment returns can be affected by changes in the rate of inflation in a particular jurisdiction or geographic region. 6.2.20 Foreign exchange Over two-thirds of the Babcock & Brown Group’s earnings are generated in currencies other than the Australian dollar, exposing the Group to adverse foreign exchange movements. The Group has a policy of hedging known cashflows and investments made in non-self sustaining operations. Since the majority of the Group’s expenses are denominated in the same currencies as the associated revenues, only the net income after total compensation is generally exposed to currency fluctuations. 6.2.21 Tax Any change to the current rate of company income tax in any of the jurisdictions where the Babcock & Brown Group operates may impact on financial performance, cash flows and investor returns. Any changes to the current rates of income tax applying to individuals and trusts will similarly impact on investor returns. 6.2.22 Insurance The Babcock & Brown Group has insurance, including Errors and Omissions (Professional Indemnity) and Directors’ and Officers’ insurance, which it believes to be commensurate with industry standards, and adequate having regard to the business activities of the Group. However, there are risks that this will be insufficient to meet a very large claim or a number of large claims, that either the Group or one of its investments is unable to secure insurance to satisfactorily cover all anticipated risks or that the cost of insurance will increase beyond anticipated levels. 6.2.23 Information technology The Babcock & Brown Group relies on various information systems, technology and software products to efficiently carry out its business. While the Group has put in place procedures and plans to ensure that data is retained and that these systems are maintained to meet the demands of the business, widespread system failures may negatively impact on the Group’s performance. 6.2.24 Change in accounting, legal and tax regimes The Babcock & Brown Group operates in and across a variety of accounting, legal and tax regimes. Change in these regimes, whilst providing opportunities, could also limit the functionality of the financial structures that the Group has developed for clients, which could impact on business performance, particularly of the structured finance group. Further, any structured financial products utilised when principal investing may also be adversely impacted by changes in accounting, legal or tax regimes. 6.2.25 Accounting standards and reported income The Group’s accounting policies and methods are fundamental to how it records and reports its financial position and results of operations. The Group’s management must exercise judgement in selecting and applying many of these accounting policies and methods so that not only do they comply with generally accepted accounting principles but that they also reflect the most appropriate manner in which to record and report the Group’s financial position and results of operations. Furthermore, management always make decisions after considering all external advice on the relevant matter. In some cases, management must select an accounting policy or method from two or more alternatives, any of which might be reasonable under the circumstances yet might result in the Babcock & Brown Group reporting materially different outcomes than would have been reported under a different alternative. With effect from 1 January 2005, Babcock & Brown has adopted AIFRS. 6.2.26 Documentation risk The Babcock & Brown Group enters into a number of highly structured transactions that require detailed documentation. As a result, the risk of dispute over interpretation or enforceability of the documentation, or errors in preparation of the documentation, may be higher than for other investments. 56 BABCOCK & BROWN SUBORDINATED NOTES
6.3 General economic factors that may affect your investment in BBSN and the Babcock & Brown Group 6.3.1 Changes in economic, financial and insurance market conditions Movements in Australian and international stock markets, changes in interest rates, inflation and inflationary expectations and overall economic and political conditions, may affect the demand for and price of BBSN. Holders should be aware that there are risks associated with any investment in debt or equity securities and that the prices of securities can go down as well as up. The Group has an investment exposure to the property and infrastructure sectors. Unfavourable financial or economic conditions may reduce the quality and attractiveness of new property and infrastructure investment opportunities available to the Group, as well as reducing returns on existing investments. Market conditions may lead to increases in the pricing or availability of insurance products, which may affect the profitability of the Group. Acts of terrorism, war and events of force majeure may affect the investments owned by the Group, and insurance may not fully cover these risks. 6.3.2 Changes in laws and government policy Changes in government legislation and policy, in particular changes to taxation laws, may affect the future earnings, asset values and the relative attractiveness of investing in BBSN. In addition, an investment in BBSN may involve tax considerations that may differ for each Holder. Each prospective investor is encouraged to seek professional tax advice in connection with any investment in BBSN. 6.3.3 Stock market fluctuations The price of the securities on ASX may rise or fall due to numerous factors which may affect the market performance of BBSN or Ordinary Shares, including: • General economic conditions, including inflation rates and interest rates. • Variations in the local and global market for listed stocks. • Changes to government policy, legislation or regulation. • Inclusion or removal from major market indices. • The nature of competition in the markets in which the Babcock & Brown Group operates. • General operational and business risks. In particular, security prices are subject to wide fluctuations, which in many cases may reflect a diverse range of noncompany specific influences such as global hostilities and tensions, acts of terrorism and the general state of the economy. Such market fluctuations may materially adversely affect the market price of the Ordinary Shares. No assurances can be made that the market performance of BBSN or Ordinary Shares will not be adversely affected by any such market fluctuations or factors. None of Babcock & Brown, its Directors or any other person guarantees the market performance of BBSN or Ordinary Shares. 6.4 Other risks The above risks should not be taken as exhaustive of the risks associated with an investment in BBSN and the Babcock & Brown Group. The risks above and other risks not specifically referred to may in the future materially adversely affect the value of an investment in BBSN and the Group’s financial position and performance. BABCOCK & BROWN SUBORDINATED NOTES 57
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BABCOCK & BROWN Sydney Melbourne Br
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Prospectus & supplementary prospect
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SUPPLEMENTARY PROSPECTUS Issuer Bab
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Key DAtes Key dates for the Offer D
Page 9 and 10: Guarantee: BBSN have the benefit of
Page 11 and 12: HoW to APPLy for BBsN Read Consider
Page 13 and 14: 1. Key terms of BBSN BABCOCK & BROW
Page 15 and 16: Interest Payments (continued) Defer
Page 17 and 18: Babcock & Brown’s transaction rig
Page 19 and 20: 2. answers to key questions BABCOCK
Page 21 and 22: Topic Summary More information BBSN
Page 23 and 24: Topic Summary More information Inte
Page 25 and 26: Topic Summary More information Exch
Page 27 and 28: Topic Summary More information Repa
Page 29 and 30: Topic Summary More information Guar
Page 31 and 32: 3. Details of the Offer BABCOCK & B
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Page 35 and 36: 3.8 How do you complete Application
Page 37 and 38: 4. information about babcock & brow
Page 39 and 40: 4.2.1 Real Estate The Real Estate g
Page 41 and 42: distribution, bulk terminal and pow
Page 43 and 44: an economist with the Australian Tr
Page 45 and 46: 5. summary financial information BA
Page 47 and 48: can be obtained free of charge by a
Page 49 and 50: Consolidated balance sheet (continu
Page 51 and 52: • performance fees earned from BJ
Page 53 and 54: 6. risk factors BABCOCK & BROWN SUB
Page 55 and 56: HISTORICAL BANK BILL SWAP RATE 8.0%
Page 57 and 58: Group. The interests of these Emplo
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Page 65 and 66: 9 November 2005 The Directors Babco
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Page 75 and 76: 8.6.1 Classes of shares The A Class
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Page 87 and 88: APPENDIX A - Glossary BABCOCK & BRO
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Page 95 and 96: APPENDIX B - Terms of Issue BABCOCK
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Issuer’s Group means the Issuer a
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APPENDIX C - arranger’s financial
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From time to time BBAH may act unde
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Pin cheque(s) here (do not staple)
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Pin cheque(s) here (do not staple)
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CORPORATE DIRECTORY Issuer Babcock
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BABCOCK & BROWN

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