04/01/2010 - 15:35

Analysis: High debt sinks Griffin

04/01/2010 - 15:35

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Warning signs started flashing around Ric Stowe's diversified Griffin Group last November when the low profile company took the extraordinary step of asking Standard & Poor's to withdraw its credit ratings.

Analysis: High debt sinks Griffin

Warning signs started flashing around Ric Stowe's diversified Griffin Group last November when the low profile company took the extraordinary step of asking Standard & Poor's to withdraw its credit ratings.

That decision closed one of the few public windows into Mr Stowe's business empire, which has taken on $700 million of debt to fund its expansion.

Griffin's move into energy generation, via the Bluewaters coal-fired power station at Collie and the Badgingarra wind farm, has been the most public part of its growth.

However, it has also been investing substantial sums in the growth of its coal mining, agriculture and land development activities.

To help fund its growth, it has issued US$425 million of unsecured notes to US investors since November 2006.

When it first issued the notes, the group had a relatively healthy BB- long term rating. S&P cut its credit rating to B+ in October 2008 and by November last year, when the rating was withdrawn, it had slumped to B-.

The downward spiral culminated this week in the appointment of Korda Mentha as voluntary administrator to five entities within the Griffin group: WR Carpenter Holdings, Griffin Energy Group, Carpenter Mine Management Holdings, Carpenter Mine Management, and The Griffin Coal Mining Company.

The entities that own Griffin's energy business, including the Bluewaters power station, are not in administration.

The trigger for the administration was Griffin's failure to meet interest payments on the US notes and to meet negotiated payments to the Australian Taxation Office.

Clearly the group's cash flow was not strong enough to meet its expenses, which increased as the volume of debt mounted.

S&P revealed the scale of Griffin's capital spending in February 2007, when it said the group planned to spend $240 million on development of the Ewington 1 and 2 coal mines at Collie and the refurbishment and expansion of a charring plant and coal-drying facilities.

The latter were designed to open up the coal export market, which historically has been closed because of the high moisture content of Collie coal.

S&P said the $240 million did not include Griffin's investment in Bluewaters, which was funded independently.

S&P cut Griffin's credit rating in October 2008 after the coal miner's financial results were below expectations.

"EBITDA interest cover for fiscal 2008 was significantly below expectations for the 'BB-' rating," S&P credit analyst Brenda Wardlaw said at the time.

"While this was partly due to adverse weather conditions, which affected operating costs, management fees to related parties also remained high. We also note that Griffin's earnings are significantly exposed to interest income from related parties."

Last November, S&P said the B- rating, prior to its withdrawal, reflected the company's "weak liquidity, limited financial disclosure due to its private-company status, limited mine and geographic diversity, ongoing capital-expenditure requirements, changing customer mix, and reliance on growth plans of key industrial customers".

"These weaknesses were partly mitigated by the company's low-cost coal mining operations, strong market share and contracted relationships with key industrial customers, favorable proximity of mines to customers, long reserve life, and successful commissioning of the Bluewaters 1 Power Station."



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