The troubled construction services business, Hastie Group, must have believed it had averted disaster earlier this week after drumming up two competing international companies with proposals for a comprehensive recapitalisation of the teetering company.
Unhappily, however, a deep divide within its banking syndicate is threatening to force the company and its 8000 employees into administration.
It is Hastie’s international expansion, particularly into the Middle East, that has left it on the brink of failure. It lost about $120 million in the region and was further destabilised earlier this year when a Middle East builder called performance bonds guaranteeing the completion of a joint venture Hastie was involved with in Dubai.
Apart from the fact that Hastie disputed the payment made by its bank, Standard Chartered, and the amount paid and gained an injunction after the event, the call raised the prospect of a ‘run’ on Hastie’s other Middle East performance bonds. With nearly $250 million of them, about $90 million of them in the Middle East, that was a serious threat to Hastie’s solvency.
Hastie’s shares were placed in a trading halt last month as a result of the dispute over the performance bond, triggering a ’review event’ under the terms of its facilities with its banks. It had negotiated revisions to its agreements with the banks, which had appeared to give it breathing space only days earlier.
Since the suspension of trading the company, which has purged the senior management who were in place during its international expansion spree, and replaced its chairman, Hastie has been in discussions with the banks while desperately searching for a buyer. It found two. It says they are "comprehensive" recapitalisation proposals that would result in it having minimal debt.
Its syndicate of seven banks – including the big four Australian banks – has, however, been deeply split in its response to the proposals despite Hastie’s success in convincing the two international companies to improve on their initial proposals.
While four of the banks, representing about 70 per cent of the syndicate’s exposure to Hastie's $500 million or so of bank debt and performance bonds, are in favour of the proposed recapitalisation, three of the Australian banks – Westpac, Commonwealth and National Australia Bank – are said to be firmly opposed.
They are said to be concerned about the timetable for a recap, as well as by its proposed value. The banks would be well aware that any recap is going to involve 'haircuts’ on the face value of their loans. For some reason there has been a divergence within the syndicate about the extent of the losses they are prepared to contemplate.
Unless the proposals are tweaked further, which Hastie is apparently trying to do, it would appear inevitable that either the three domestic banks (who are being advised by McGrath Nicholl) will appoint an administrator (presumably McGrath Nicholl) or Hastie directors will be forced to protect themselves by doing the same.
The stance of the four banks that support the recap would suggest that they believe that would be a worse outcome for them. It is possible that an administration would trigger calls on the group’s performance bonds. It would obviously also be an unpleasant outcome for the company and its employees.
What makes the Hastie situation particularly interesting is that less than a year ago the company raised $160 million of new equity through a prospectus offering that brought Lazard Private Equity*, Schroders, Perennial and the Pratt family’s Thorney Investments onto its register as part of a major capital and debt restructuring.
Those investors would be less than impressed with what has subsequently transpired and it would be surprising if they didn’t eventually seek some kind of recourse for seeing their investments being wiped out so quickly.
*John Wylie, managing director of Lazard in Australia, is an investor in Australian Independent Business Media, publisher of Business Spectator.
Collapse of Hastie hopes
A deep divide in Hastie Group's banking syndicate over buyout plans for the ailing group threatens to force Hastie into administration.
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