Hastie investors hungry for answers

With its collapse coming less than 12 months after a $160 million capital raising, investors and ASIC will be asking serious questions about the prospectus issued by Hastie Group and the accounting irregularities that drove its demise.

The fallout from the collapse of Hastie Group is already ugly, with thousands of jobs in jeopardy and hundreds of millions of dollars of losses for the banks in prospect. It could, however, get even uglier.

Hastie’s directors, its auditors, its senior management and former senior managers will be feeling very uneasy in the knowledge that not only will the Australian Securities and Investment Commission delve deeply into the circumstances that led to the group’s collapse but that there is also a group of very wealthy and very angry investors which will be looking for retribution, and compensation for their losses.

In the words of Hastie’s administrator, PBB Advisory’s Ian Carson, the $23 million or so of accounting ‘’irregularities’’ found very late in the attempt to keep the group afloat were the ‘’straw that broke the camel’s back,’’ rather than the key reason for the collapse.

That those irregularities appear to date back as far as 2008-09, and may be part of a wider series of financial misrepresentations, however, could be a very real issue for those with an exposure to the company’s implosion. It is known that Hastie’s relatively new chief executive, Bill Wild, wasn’t happy with the group’s numbers even before the latest batch of irregularities emerged.

Those irregularities, which Wild has said were part of a culture of covering up bad news rather than motivated for personal gain, did sink the last-ditch attempts to convince competing private equity firms to recapitalise the group in recent weeks.

Those attempts weren’t helped by deep divisions within Hastie’s banking syndicate, which has an exposure to Hastie’s debts and performance guarantees of around $500 million. For the four of the seven banks that supported a recap, the accounting irregularities proved to be that final straw.

With Hastie saying that some current and former senior managers may have participated in the accounting irregularities and failed to apply the appropriate standards of financial supervision and review, the class action law firms and financiers will be scrambling onto a war footing.

The real danger for those who were in control of the group’s affairs around this time last year lies within Hastie’s last recapitalisation.

Last year, as a result of difficult trading conditions and the group’s poor operating and financial performance, Hastie said it was at risk of breaching its banking covenants. To head off that risk, Hastie raised $160 million of new equity through a prospectus offering, which included directors’ forecasts, underwritten by UBS and Macquarie. The investigating accountant for that offer was Hastie’s long time auditor, Deloitte.

The prospectus was obviously convincing enough to attract some heavyweight investors. Lazard Private Equity*, Schroders, Perennial and the Pratt family’s Thorney Investments came onto the Hastie register, with Lazard, described as the ‘’cornerstone’’ investor, stumping up about $50 million for a 25 per cent stake in the group.

Less than 12 months later – the recapitalisation and a restructuring of the banks’ funding were completed in July last year – Hastie has collapsed. Little wonder those who invested on the strength of the prospectus and the representations made by the board and its senior managers, are seething. One of those managers – former CEO David Harris, who presided over a massive acquisition-driven expansion spree – departed the group last November.

Within a month of joining the group Bill Wild and his new chief financial officer Mark Wratten had started a strategic review of Hastie’s Middle East and international operations and were beginning to understand how poorly the group had been structured and managed.

It was losses in the Middle East, and the disputed calling of performance bonds in relation to a project in the Middle East, that plunged Hastie back into crisis and ultimately led to its demise but it is the relative proximity of that prospectus last year to the collapse that is going to cause quite a few people associated with the company and the raising some extremely anxious moments.

*John Wylie, managing director of Lazard Australia, is an investor in Australian Independent Business Media, publisher of Business Spectator.

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