Paying dearly to do business in dicey Dubai

IF SECRETIVE, opulent Monaco can be considered a sunny place for shady people, what does that make the oil-rich state of Dubai in the Middle East?

IF SECRETIVE, opulent Monaco can be considered a sunny place for shady people, what does that make the oil-rich state of Dubai in the Middle East?

For investors and entrepreneurs it has proved a dicey place to do business, where contracts and courts have a mind of their own and the cycle of boom and bust is supercharged by barrels upon barrels of petroleum.

Australia's Hastie Group has discovered just how dangerous to your wealth Dubai can be as its $6.2 million construction dispute with Dutco Balfour Beatty grinds through the courts and it stands to lose that sum of money plus another $8 million to $10 million in unpaid bills that the ASX-listed company has already written off.

Yesterday Hastie shares, which have fallen more than 70 per cent this year, were placed in a trading halt as the group prepares for the latest court battle with its former client Dutco. The potential loss arising from the contract dispute is so big that it is now a material issue for the company's earnings outlook.

In any other court in Australia, North America or Europe there would be certain protections in place. Not in Dubai. It seems that Dutco failed to turn up to the last court appearance and is now racing to the bank to claim more than $6 million in construction bonds put up by Hastie years ago when it originally won the $50 million contract to fit out the near-complete Novotel complex in Dubai.

The problem for Hastie is that just before a religious holiday last week Dutco turned up at the bank demanding payment of the bond, and with the judge and court officers away there was no authority to stop them.

The bank, Ulster Bank, which is fronted by Standard Chartered in Dubai, is potentially under legal obligation to pay out the bond to the holder of the proper documents, in this case Dutco, and it may be already too late to stop the money changing hands.

Hastie says as yet the bond has not been handed over and it is awaiting a new court appearance tomorrow. But will Dutco even bother turning up? The loss of the bond could blow a big hole in Hastie's budget and its share price.

Brambles sale delayed

THE sale of Brambles' document management arm, Recall, has not been an easy run to the finish line for management.

Brambles told the market on March 28 it expected to complete the sale within four to eight weeks, which is later than the original deadline of the end of last month.

The delay in the sale of Recall has not been a complete surprise given the fragile state of debt markets. But it does suggest Brambles has not exactly been swamped by potential buyers.

Macquarie Equities analysts still reckon Brambles could fetch about $2 billion for the business, which would equate to about $1.8 billion after tax.

The sale of Recall at a decent price will be a much-needed boost for Brambles, allowing it to pay down debt and return funds to shareholders through a share buyback.

It will also allow Brambles to focus on its core CHEP pallets business, whose short-term outlook is looking brighter, thanks to signs of improvement in the US economy. The country is its biggest market, accounting for about 40 per cent of earnings.

Macquarie analysts are also betting on it winning back more customers in the US from upstart rival iGPS, which Brambles has emphasised is struggling after initially competing aggressively for business.

Although Brambles has been several analysts' top pick among Australia's transport stocks this year, Merrill Lynch believes there are slightly more risks to the downside for Brambles from a disappointing outcome from the Recall sale and weak European economies continuing to be a drag on earnings.

However, other analysts say a failure to sell Recall would not be the end of the world. A worse outcome, they say, would be for Brambles to sell it at an inferior price.

Capral woes continue

ANY remaining optimism GPG shareholders hold for the ongoing self-liquidation to free up more quick cash looks set to be frustrated

on another front, with Capral, its long-running building products disaster, showing no signs of making a profit, to enable GPG to sell out.

Capral shares remain near their long-term lows, ending at 17? yesterday on minuscule volumes.

Shareholders were painted a grim picture

at yesterday's annual

meeting, with continued "cost and pricing pressures", from cheap imports

and local competitors, showing little prospect

of easing.

Earlier moves to cut its own costs would only "partly" offset these pressures, shareholders were warned.

"There does not appear to be respite from the tough trading environment in the short term," managing director Phil Jobe said, with the company waiting for an "upswing cycle" to emerge in housing starts.

The fading prospects for a quick turnaround have also caught Perpetual flat-footed, since it raised its Capral stake to 10 per cent earlier in the year.

The loss of the bond could blow a big hole in Hastie's budget and its share price.

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