21/05/2009 - 00:00

Debt gets the better of Gt Southern

21/05/2009 - 00:00

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The collapse of two agribusiness companies in less than a month has raised doubts over the sector’s viability.

GREAT Southern investors will gather next week for a creditors meeting in Melbourne to find out if there is a chance of retrieving their money following the sudden collapse of the group.

Creditors may, however, get a better indication of the financial position of the failed agribusiness company by going to Darwin to attend the auction of its large Kimberley cattle station next month.

The 660,000-hectare cattle station near Halls Creek, called Moola Bulla, is the first of the Perth-based company's three properties that will go under the hammer, and will provide an insight into the demand for the remaining two stations.

Real estate agent John Garland, who looked after the sale of Moola Bulla 10 years ago, said there was reasonable local and overseas interest for the Kimberley property.

"It won't rise to the level Great Southern paid a few years ago," Mr Garland said. "But I would suggest there's going to be reasonable demand for land that size. There are so few large viable stations in WA."

The timber plantation and cattle project manager paid about $30 million for Moola Bulla in 2006 in the middle of its land-buying spree. The book value of Great Southern's cattle assets is $290 million, although the property auctions will be distressed sales conducted by the receivers. The rest of Great Southern's assets will be sold off in the coming months.

A consortium of banks - Commonwealth Bank of Australia, its subsidiary BankWest, ANZ and Japanese bank Mizuho - called in receivers this week to unwind Great Southern and retrieve their $600 million debt.

Great Southern is the second debt-laden agribusiness firm to collapse in the past month, following the failure of Timbercorp. The collapses will wipe hundreds of millions of dollars that traditionally flow into the tax-effective managed investment schemes (MIS), run by agribusiness providers, in the lead-up to June 30.

Steve Johnson, the managing director of share market tip sheet The Intelligent Investor, said the collapses would scare off potential investors.

"The whole industry has a bad reputation and rightfully so," Mr Johnson said.

The sector has long been criticised for paying financial advisers high commissions, or other forms of remuneration, when they recommend clients invest in their investment schemes.

Timber processor and plantation manager ITC this week distanced itself from the collapse of its two biggest competitors.

ITC communications manager Adam Redman said the failed companies were weighed down with debt, which was not the case across the MIS sector.

"It's a disappointing development for the whole sector. People's confidence has been damaged by these developments coming so closely together," he said.

"There are different MIS models just as there are different business models and ITC is in sound shape on both. We ask people to look at each company on its own merits."

In good years MIS projects - spread across forestry, horticulture, viticulture, livestock and aquaculture - attract more than $1 billion from investors seeking to minimise tax bills by claiming upfront deductions.

The managing director of pearl producer Arafura Pearls, Andrew Hewitt, said Timbercorp and Great Southern had become too reliant on debt.

"Where you become reliant on debt as both companies have done and go into the uncertain climate we're experiencing, they're an accident waiting to happen," Mr Hewitt said.

"Tax-effective investment activity in forestry and non-forestry does have a role, and is successfully employed by companies like Gunns, who have a small MIS division."

He said Arafura had a small amount of MIS activity, as opposed to the financial services style offering of the two failed businesses, which were based on MIS offerings.

 

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