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 already 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 fitting 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 that 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 picks 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 for 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 will 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.
Frequently Asked Questions about this Article…
What is the Hastie Dubai dispute and how could it affect Hastie shareholders?
Hastie is involved in a construction dispute in Dubai with Dutco (formerly Dutco Balfour Beatty) over a Novotel fit-out. The potential loss includes a A$6.2 million disputed claim plus another A$8–10 million in unpaid bills that Hastie has already written off. The matter is in the Dubai courts, Hastie shares have fallen sharply this year and were placed in a trading halt while the company prepares for the next court appearance. If Hastie loses the bond or the dispute, it could materially hurt the company’s earnings outlook and share price.
Why is a construction bond central to the Hastie vs Dutco case and what can happen to that bond?
When Hastie originally won the contract it put up construction bonds as security. Dutco has sought payment of those bonds at a bank in Dubai. Banks (in this case Ulster Bank represented by Standard Chartered in Dubai) can be legally obliged to pay a bond to whoever presents the correct documents. If the bank has already paid the bond to Dutco, Hastie could lose that money unless a court intervenes. Hastie says the bond has not yet been handed over and the next court appearance will be important.
What should everyday investors watch next in the Hastie legal dispute?
Investors should monitor the outcome of the upcoming Dubai court appearances, any confirmation whether the bank has paid out the construction bond, changes to Hastie’s earnings guidance or provision amounts, and any updates to the company’s trading status. These developments will drive how material the loss is to Hastie’s balance sheet and share price.
Why has the sale of Brambles’ Recall document-management business been delayed and what does that mean for investors?
Brambles told the market on March 28 it expected the Recall sale to complete within four to eight weeks, later than an earlier deadline. The delay reflects fragile debt markets and limited buyer interest. For investors, a decent sale would provide cash to pay down debt, fund share buybacks and let Brambles focus on its core CHEP pallets business. A disappointing sale or a low sale price would be a downside risk to the stock.
How much could Brambles get for Recall and how would proceeds be used?
Analysts at Macquarie estimate Recall could fetch about US$2 billion (roughly A$2 billion), which they say would be about A$1.8 billion after tax. Proceeds would likely be used to reduce debt and potentially return capital to shareholders via buybacks, while allowing Brambles to concentrate on its core CHEP pallets operations.
Is Brambles’ CHEP pallets business showing signs of improvement and how does iGPS factor in?
Yes — Brambles’ short-term outlook for its CHEP pallets business looks brighter, helped by signs of improvement in the US economy (its largest market, around 40% of earnings). Macquarie analysts also believe Brambles could win back customers from rival iGPS, which Brambles says has been struggling after an initially aggressive push for business.
What are the issues facing Capral and why does that matter to GPG shareholders?
Capral, the building products company, remains unprofitable with shares near long-term lows. Management warned of ongoing cost and pricing pressures from cheap imports and local competitors, and earlier cost cuts will only partly offset those pressures. That matters for GPG shareholders because GPG was relying on a potential recovery at Capral and its self-liquidation plans to free up cash — a continued weak Capral undermines that expectation. Perpetual has also raised its Capral stake to 10%, highlighting investor concern.
What broader investor lessons does the article suggest about doing business in Dubai and distressed assets?
The article highlights that foreign legal and business environments can carry unique risks — e.g., Dubai’s court timing, bond payment rules and boom-bust cycles tied to oil. For everyday investors, the takeaway is to factor in jurisdiction risk when a company has material exposure overseas, watch for legal and counterparty risk (like bond claims), and pay attention to whether distressed asset sales (such as Brambles’ Recall) are completing at acceptable prices.
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