Debt Troubles Hit Bond, Qintex
WIDER AUSTRALIAN PROBLEM?
TWO of Australia's best-known, high-flying entrepreneurs are now being derisively dubbed ``galahs'' (the Aussie equivalent of a turkey). Their tailspins, coupled with Standard & Poor's recent downgrading of Australian government bonds, are generating international concern about the country's economy. Alan Bond, famous for his 1983 America's Cup yachting victory, once circled the globe snatching up corporate assets. Now he's struggling to keep Bond Corporation Holdings (brewing, real estate, communications media) from sinking under too much debt. Hit by high interest rates, a government inquiry into his media holdings, and a string of deals gone awry, Bond last month reported losses of US$775 million for 1988-89. Auditors issued a heavily qualified annual report this week that raised doubts about Bond's continuing existence.
Similarly, the future of Christopher Skase's Qintex (media, luxury resorts) empire hangs on the shaken confidence of its lenders. Until now, Mr. Skase has had an almost flawless meteoric rise to become one of Australia's richest men. But in September, Skase apparently failed to raised the $50 million deposit in a $1.5 billion bid for the United States film giant MGM-UA Entertainment Company. Last month, Skase's US subsidiary filed for bankruptcy and his highly leveraged Qintex Australia group began to unravel.
Trading in Qintex shares has been halted. By offering to let shareholders vote on the propriety of questionable payments to Qintex management, Skase this week temporarily sidestepped an investigation by the National Companies and Securities Commission, the watchdog agency for Australia's stock market.
A three-month-old national airline pilots dispute has also undermined profits at Qintex tourist resorts. A banking syndicate is expected to decide this week whether or not to give Skase time to restructure, based on an independent accountant's report on the company's financial position.
The plummets of these high-profile enterprises sparked questions about international bank lending practices. ``It surprises me that so many people have been willing to lend money for the corporate equivalent of a pea-under-the-thimble trick. There's so little underlying value,'' says Rodney Maddock, head of the economics department at La Trobe University near Melbourne.
Australia's net foreign debt tops $85 billion - third largest in the world after Mexico and Brazil. The majority is private-sector borrowing, not government debt.
There's also concern about the ``spillover effect'' on other Australian companies seeking funds abroad. ``The general economic scene plus the publicity surrounding corporate failures tends to make banks more cautious about lending to Australian companies,'' says Jeff Schubert, chief economist for Hong Kong Bank of Australia.
Others say the concerns are overblown. ``This is just the natural working out when someone overreaches themselves. Bond and Skase are extreme examples, not typical of mainstream Australian companies,'' says Andrew Mohl, chief economist of the ANZ Banking Group.
On Nov. 15, the Business Council of Australia announced a ``debt summit'' of Australia's top 200 executives next March to explore and address the problem. ``We think Australia is a bit like a yacht. We're sailing on Sydney Harbour in fine weather, [but] we're taking on water into the hull in the form of foreign debt,'' said Sir Roderick Carnegie, a past president of the council and a director of ANZ Banking Group.
The council's summit is politically significant. It's likely to take place in the midst of Prime Minister Bob Hawke's Australian Labor Party bid to win an unprecedented fourth term. And it's being viewed as an indication of corporate dissatisfaction with Hawke economic policies and an attempt to shift the election agenda away from environmental issues that have taken the limelight lately.