Quite a few Australian companies seem to have their hands out for more cash to water whatever ‘green shoots’ they can find at the moment, the need to downgrade earnings and raise cash seems to be as big a driver for some groups as selling widgets and services to customers.
In the past month we have seen earnings downgrades from Fairfax, West Australian Newspapers, AWB, APN, Incitec Pivot, Lend Lease, BlueScope and OneSteel and Oil Search and yesterday the Commonwealth Bank and CSR, which also confirmed a rather nasty earnings slump in the year to March.
Banks like Westpac, the ANZ, Nab and Bendigo have also warned shareholders to expect higher bad debts and lower profits in the current half year.
Contractor, AJ Lucas was another company to downgrade earnings yesterday, while Macmahon Holdings, which is partly controlled by Leighton, went into a trading halt ahead of a capital raising. It had previously slashed earnings and staff because of a downturn in demand from the mining sector.
For the Federal Government’s 2009-10 budget, its confirmation of the reality of the plunge in corporate tax: each of these companies will be paying lower, or no taxes in the coming year.
At the same time the stricken property groups have tumbled into the market, looking for money to rebuilt their shattered business models and balance sheets.
Last week it was GPT, once a blue chip, now a fallen star after getting involved with the sharp guys at Babcock and Brown. It is in the process of completing a raising for $1.7 billion, after raising $1.6 billion six months ago.
And GPT’s 13.1% shareholder, Stockland, one of the country’s most reputable and strongest property groups, yesterday revealed plans to raise up to $2 billion from the market and shareholders: its second funding in 8 months after raising $300 million late last year.(Source).
There’s also speculation that the embattled Valad property group will be looking for cash perhaps today or tomorrow after its shares rose mysteriously.
(That seems to be the new tactic, boost share prices to a level where a company can more comfortably raise cash. We saw that with stricken ragtrader, Pacific Brands, whose shares jumped from 44 cents on April 27 to over 72 cents last week.
It revealed plans Monday to raise up to $256 million. The shares rose despite two big shareholders in the Colonial and 452 Capital selling millions of shares)
Last week BlueScope Steel, the country’s biggest steelmaker, revealed plans to raise up to $2.1 billion from shareholders and in a re-worked loan package from its banks.
Sp AusNet, the Victorian energy utility, revealed plans to raise $415 million and also on Monday, Santos on money put its hand up for $3 billion.
Many of these companies have penalised shareholders by slashing dividend: Fairfax, Stockland, GPT, CSR, lend Lease, APN, BlueScope and more.
The pressures on earnings come from the credit crunch and recession exposing dud loans at the banks, too much debt at companies like Fairfax and the property groups.
The banks aren’t lending: much of the fund raising (Fairfax raised over $600 million earlier this year) has been driven by banks monstering companies to raise more capital too reduce debt, improve their interest cover and cut their gearing.
The irony remains that many of these banks that won’t lend more and are pressure companies to raise more capital, are funding those demands from their funds management arms, such as the CBA’s Colonial, the NAB’s MLC and Westpac’s BT.
Even though some of these groups are zombies, especially in property, with few buyers about, the banks want them to recapitalise, because in the end keeping them on a drip will be a better outcome than pulling the plug and putting them into receivership.
The money for these billions of dollars in cash calls is principally coming from the super fund holdings of companies, industry funds, individual super funds and small shareholders, who have been the least interested of them all.
The fund managers get fees for placing the money into these fund raisings and the banks and the company’s advisers and brokers get fee income at a time when there’s not much of it about.
It’s a necessary recapitalising of stricken groups and sectors, but all the problems so far are of the companies own making (and their banks) for trying to follow the likes of Macquarie Bank in developing a rich system for mining the market and investors (Babcock and Brown and Allco); or silly lending by banks, or dud investments like GPT and Stockland and Lend Lease (which have got tangled up in the UK, as has Valad).
CSR, the sugar and building materials company, reported a 17% fall in full-year earnings before interest and taxes, hit by the building slump (but the first home buyers building boom will help improve the outlook).
On top of this asset write-downs and restructuring costs pushed it to a net loss of $326.5 million. So CSR cut its final dividend to 1.5 cents a share, from 9 cents last year.
The CBA has sliced its final dividend by 25%, jointing Westpac (down 20%), the ANZ and NAB (both around 24%) in penalising shareholders for dud lending and rising bad debts. The CBA’s total dividend for the year to June will be cut by 14 %.(Source).
Seeing the key bank regulator, APRA, has made commercial property loan exposures of the banks a prudential priority this year, its understandable that the Commonw
