THE DISTILLERY: Hastie wreckage

Jotters backtrack over a timeline of Hastie waste, weighing up just when things got out of control.

Business commentators are continuing to sift through the wreckage left by Hastie Group and two things have emerged. One, concerns probably should have been raised when last year’s prospectus revealed that cash on hand had tumbled quite markedly. Two, there will be senior management figures and directors at Hastie who will be very nervous about the determination of the corporate regulator to investigate what can be a chilling euphemism in the business world – accounting irregularities.

Firstly, The Australian’s John Durie says it’s difficult to determine whether Hastie Group was too far gone by the time former Leighton executive Bill Wild took the reigns.

"Wild was an experienced practitioner from Leighton, so he knew the rules of the construction game, particularly as far as the Middle East was concerned. If a company is in trouble, the suppliers demand cash up front, and their clients tend to pay when they are paid. So Hastie was left stuck in the middle, with bankers increasingly nervous. If construction companies play it hard in Australia, legend has it that in the Middle East it takes a lot longer to get paid and the old rules of ‘pay when paid’ are strictly enforced. Arguably, alarm bells should have rung when last year's prospectus noted cash on hand fell from $70.7 million as of December 10 to $29.9 million in April 2011. That could have been an issue around when bills were paid, but was certainly worth asking about.”

Whatever the case, Business Spectator’s Stephen Bartholomeusz says the collapse of Hastie looked ugly enough with the spectre of "accounting irregularities” hanging over senior management and the board.

"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.”

Meanwhile, news from The Australian Financial Review that James Packer will be taking on Echo Entertainment's chairman in an extraordinary general meeting has got the newspaper’s commentators talking. The AFR’s Chanticleer columnist Tony Boyd notices that Packer, and potentially fellow billionaire Gina Rinehart, are taking a page out of the Kerry Stokes playbook.

"Both Packer and Rinehart are frustrated by their treatment by two tough chairmen who have been around the traps for a long time and will not be intimidated by threats or public campaigns for board seats. The aspect of the Stokes strategy that obviously appeals to Packer, and would no doubt appeal to Rinehart, is that it can result in change in control of a company without the need for a full takeover offer to all shareholders. Of course that is against the spirit of the Corporations Act, but it is perfectly legal and it has proved successful for decades. When Stokes took on the board of West Australian Newspapers in 2008, he simply dusted off a strategy used by corporate raiders Sir Ron Brierley and Gary Weiss in the 1980s and 1990s.”

The AFR’s James Chessell points out that Packer cannot simply appeal to the misgivings that Echo shareholders might have for their company.

"Packer needs to sell Echo shareholders a positive story as far as value is concerned. Investors are very aware of Story’s shortcomings but they need to hear a good argument before effectively giving control to another shareholder without a premium. And this is where it will get interesting. Over the next fortnight Crown will run press ads highlighting the underperformance of Crown vs Echo since 2005. The numbers are not good for Story.”

In economic matters, there’s a curious parallel this morning between two of our most respected economics commentators. The Sydney Morning Herald’s economics editor Ross Gittins seriously investigates the notion that Labor is a big taxing, big spending government. He concludes persuasively that they’re not big taxing, but they are big spending. Over at The Australian his counterpart David Uren reveals that the Coalition has done costings for 49 policy areas in anticipation of a snap election. The title of the story is ‘Coalition is still a big spender’.

For all the political noise about fiscal responsibility, these examples bring to mind the message delivered by both McDonalds and Hungry Jacks that their burgers are best, each implying their opponent’s are not. In just one morning we can find that both sides of the fiscal responsibility debate are serving up absolute rubbish.

Meanwhile, Dow Jones’ James Glynn argues that the Reserve Bank shouldn’t wait for the outcome of Europe’s latest Greek problems before it cuts rates again. The Australian Financial Review’s Matthew Stevens urges Australia to refocus efforts on improving our cost competitiveness in the minerals space. And The Australian Financial Review’s economics editor, Alan Mitchell, says a central banker in the US is asking whether America is closer to full employment than the data suggests.

In company affairs, The Sydney Morning Herald’s Elizabeth Knight looks beyond the obvious relief amongst Wesfarmers investors that Coles boss Ian McLeod is staying on – and for less pay, mind you – to the obvious questions about long term leadership at the West Australian conglomerate. The Age’s Adele Ferguson says Vision Super has been so surprised that its merger with Equipsuper has been called off that the bereaved’s chairman has equated it to a fiancee hearing the wedding’s off via text message. And Fairfax’s Ian McIlwraith looks at a potentially touchy forthcoming episode in Australian-Malaysian relations concerning allegations that a now-deceased former Malaysian government minister stole more than $20 million from an ASX-listed company to repay a personal debt.

And finally, The Age’s Peter Martin urges the competition regulator to seriously consider the implications of approving a deal that dictates the coaxial fibre network of Optus be destroyed.

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