All's not well at the Ayers Rock Resort

It was mid-October 2010 and GPT chief Michael Cameron had plenty to crow about. Once the heavyweight of Australia's property trust sector, GPT's perilous leverage had nearly sent it to the grave during the global financial crisis.

Thanks to a rescue by a Singaporean sovereign wealth fund, Cameron was now busy reviving the group from its near-death experience. He was cashing up too, via the sale of GPT's tourism assets. The most iconic of these was the Ayers Rock Resort in central Australia which Cameron sold for $317 million.

Unfortunately for the buyer, the Indigenous Land Corporation (ILC), this was not such a great deal.

The government-funded ILC took the long handle to its flagship resort last week, axing $62 million from its asset value while pulling off the biggest boardroom putsch in the history of the corporation.

Ayers Rock Resort is owned and managed by Voyages Indigenous Tourism Australia, which is in turn owned by ILC. In one fell swoop, ILC chairman Dawn Casey and her board rolled the high-profile Voyages' directors: Investec Bank chairman Richard Longes, property executive Peter Barge, former Qantas chief Geoff Dixon and former boss of Indigenous Business Australia Ronald Morony.

It was a bloodbath. And in the aftermath, managing director Koos Klein also stood down.

A few days earlier, on October 19, prominent Sydney lawyer and power broker David Baffsky had not been reappointed to the chair of Voyages or his ILC directorship.

At the heart of the hostility was the performance of Ayers Rock Resort and heated disagreement over corporate governance. Neither party disputes that the resort has been a resounding success for indigenous training and employment - this is all about the money.

But to the dismay of Dawn Casey and the other directors a story appeared in The Australian on Friday in which Indigenous Affairs Minister, Nigel Scullion, and Baffsky said the resort was profitable.

Casey fired off a note to Scullion reiterating her board's position that the resort was not profitable. Scullion should have already been apprised of the financial health of the resort as the ILC had filed audited accounts on October 16 and requested an audience to advise the minister on affairs. The statements show Voyages had a total operating loss of $84.05 million for 2012/13. Even accounting for the write-down of $62 million, Voyages still made a loss of $22 million.

It seems the minister must have been evaluating the profitability of the resort (it accounts for roughly 85 per cent of the Voyages business) on the assumption that interest payments on the debt be stripped out, and depreciation costs, too.

In technical terms, Voyages had made an operating profit of $14.5 million but it was crippled by $198 million in borrowings.

Since Casey took the chair of the ILC in 2011 there has been increasing consternation over the circumstances of the transaction.

Struck in 2011, it was structured as a vendor finance arrangement whereby GPT provided $138 million to ILC to fund the acquisition.

On top of the $138 million, which ILC borrowed from GPT, Voyages borrowed $60 million from ANZ.

The deal was predicated on the assumption that it would be self-funding, that ILC would not have to tip in any more.

Although the hotel took off as the ILC's centrepiece for indigenous training, the downturn in Northern Territory tourism and rocketing energy prices hit revenues.

Voyages had been making the interest payments on its debt but when it got into strife directors asked the ILC for $9 million to meet repayments. ILC did not want its regulatory function compromised by Voyages' financial distress.

Baffsky argued that, even if there had been an expectation the deal would be self-funding, the loan had been taken out by the ILC, not

Voyages.

"The company made an operating profit of $14.5 million. [The bottom line] includes a whole range of non-cash items," Baffsky told BusinessDay.

While agreeing that, interest payments on the debt and depreciation costs were not included in operating profit, he said the Ayres Rock Resort was "profitable".

"The loan was taken out by ILC, not by Voyager. It's an intercompany loan."

He said any issue that the ILC board had in relation to corporate governance was a "total fabrication".

Adding to the fracas between the boards of the ILC and Voyages was the role of Grant Samuel in recommending the transaction.

Voyages is now projected to make a loss of $1.2 million this financial year.

On Grant Samuel forecasts it was supposed to be a $15.4 million

profit.