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.
insider@fairfaxmedia.com.au
The loss of the bond could blow a big hole in Hastie's budget and its share price.
Frequently Asked Questions about this Article…
What is the Hastie Group vs Dutco dispute in Dubai and how big is the potential loss?
Hastie is in a legal fight with Dutco Balfour Beatty over a Dubai construction contract. The immediate dispute involves about $6.2 million in claims and Hastie may also have already written off a further $8–10 million in unpaid bills related to the project. The case centres on a construction bond and court action in Dubai that could leave Hastie facing a material hit to earnings if it loses the bond or further claims.
How could losing the Dubai construction bond affect Hastie’s share price and earnings outlook?
Losing the bond would be a material setback for Hastie’s finances and could create a large hole in its budget. The company’s shares have already fallen more than 70% this year and were recently put in a trading halt while the group prepares for the next court appearance — underscoring that the dispute is significant for both earnings guidance and investor confidence.
Why does the article say doing business in Dubai can be risky for international contractors?
The article highlights that Dubai’s boom-and-bust cycles and local legal processes can be unpredictable compared with courts in Australia, North America or Europe. In this case, Dutco reportedly did not appear at a court hearing and went to a bank to demand payment of a construction bond while judges and court officers were away — an outcome the article frames as a risk foreign contractors can face in Dubai.
What is the current status of the construction bond and what should investors watch next?
Hastie says the bond has not yet been handed over to Dutco and the company is awaiting a new court appearance. However, the article notes concern that Dutco attended the bank before a religious holiday to demand the bond and that the bank (Ulster Bank, fronted by Standard Chartered in Dubai) may be legally obliged to pay the holder of the proper documents. Investors should watch upcoming court dates and any announcements about whether the bank has paid the bond.
Why has Brambles delayed the sale of its Recall document-management business and what are the expected proceeds?
Brambles delayed the Recall sale amid fragile debt markets and fewer immediate buyers. On March 28 it said it expected completion within four to eight weeks (later than the original deadline). Macquarie Equities analysts estimate Recall could fetch about $2 billion (around $1.8 billion after tax), which Brambles could use to pay down debt, buy back shares and refocus on its core CHEP pallets business.
How is Brambles’ core CHEP pallets business performing and what opportunities are mentioned?
The short-term outlook for CHEP pallets is described as looking brighter, helped by signs of improvement in the US economy. The US is Brambles’ biggest market, accounting for about 40% of earnings, and analysts expect Brambles may win back customers from rival iGPS, which the article says is struggling after aggressive initial competition.
What risks should investors consider around the Recall sale and Brambles’ outlook?
Key risks include fragile debt markets delaying or complicating a sale, weak European economies that could drag on earnings, and the danger of selling Recall at an inferior price. While some analysts expect a solid outcome, others (including Merrill Lynch) point to downside risks if the transaction disappoints.
What are the main problems at Capral and how do they affect shareholders like GPG and Perpetual?
Capral is described as a long-running building-products trouble spot showing no sign of profit, with shares trading near long-term lows on very low volumes. Management warned of ongoing cost and pricing pressures from cheap imports and local competitors, and cost cuts will only partly offset those pressures. That poor performance has frustrated plans for GPG’s self-liquidation to free cash, and it also left investors such as Perpetual — which raised its stake to about 10% — exposed to a weak turnaround outlook.
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