THE DISTILLERY: Hastie judgement

The collapse of engineering firm Hastie Group highlights the pitfalls of disguising bad news and poor acquisitions, as well as the dire state that the Australian construction industry is in. That’s what is coming out of our nation’s business commentators in this edition of The Distillery, following the unfortunate and probably avoidable collapse that will cost 2500 jobs.

The Age’s Adele Ferguson says the Hastie workforce is paying a big price for the mistakes of its senior management over a prolonged period of time.

"It is a salutary warning to any company that encourages a culture of hiding bad news and making acquisitions without proper due diligence, the acting chief executive Bill Wild said yesterday. In the case of Hastie, if it wasn't for the discovery last week that at least one senior executive had conspired to falsify the accounts to the tune of $20 million, Hastie might have survived. Earlier in the week, two private equity operators, one believed to be KKR, had planned to buy $260 million of debt from the banks at a substantial discount. They had also planned to acquire $243 million of bank guarantees in return for a fee from the banks. It would have resulted in the banks taking a big haircut on the loans but all seven were believed to be in favour of doing it. This, coupled with a plan to sell some businesses and take the knife to group overheads would have saved the company. But Wild said when news of the accounting irregularities came out, one of the investors pulled out, the other changed some of the terms and some of the banks became nervous.”

The Sydney Morning Herald’s Ian Verrender argues that accountability extends beyond the company to auditors – though the writer emphasises his respect for a form of accounting that can be almost artful.

"Auditing is a tough job with little thanks for the highly skilled practitioners who toil away over mundane ledgers for years on end. It may be accounting at its most pure. But auditing generates precious little in the way of income – less than 25 per cent – for big companies and so ranks down the ladder in the kudos stakes. Truth be known, it is merely a loss leader by the big bean-counting firms, who compete madly for auditing gigs only because they can use it as a means of entry into a corporation to snare the truly profitable business of ‘consulting’. Woe betide any auditor who threatens that lucrative line of income. Find an ‘irregularity’ and the pressure mounts from, not just the client, but from within the accounting firm.”

The Australian Financial Review’s Chanticleer columnist Tony Boyd points out that Hastie fell apart while its peers are struggling in a dour construction industry.

"The Hastie collapse follows the demise in recent months of construction companies Kell & Rigby and St Hilliers Group. The common theme among all three is that the companies bid for work at prices that proved uneconomic. Market conditions are such that any companies sailing close to the wind either because of poor management decisions, too much debt or weak cash flow will be vulnerable. The receivers and administrators are enjoying a revival of fortunes not seen since 2009. Hastie suffered from having too many banks that could not agree on a refinancing strategy, which in turn destroyed efforts to sell the business to private equity. The Hastie banking syndicate, which has made a packet over the past year by gouging fees on every recovery move the company made, called in McGrathNicol partner Peter Anderson as receiver.”

In other company news, Fairfax’s Insider columnist Ian McIlwraith looks at Alesco Corporation’s defence against a takeover offer from paints company Dulux Group.

Meanwhile, Fairfax’s Jo Chandler finds a growing level of community suspicion in Papua New Guinea towards the multibillion-dollar Esso LNG project. The Sydney Morning Herald’s Michael Pascoe hits Australian Workers Union chief Paul Howes hard for feigning ignorance over the government's 457 work visa deal with Gina Rinehart for the Roy Hill iron ore project.

The Australian’s John Durie argues that NBN Co’s fibre-coaxial cable shutdown deal with Optus only compounds the mistake of the overpayments to its larger rival.

And finally, The Age’s economics editor Tim Colebatch eviscerates the Coalition’s argument that Australia is swimming in debt. Admittedly this isn’t a difficult task, but the writer does so by putting the Coalition’s arguments against a backdrop of record-low government borrowing yields thanks to the rumblings in Europe.