ABC, Allco, FreightLink collapse

This week we have seen a string of large companies go into administration and further declines in employment across the economy, particularly in manufacturing and resources industries.

ABC Learning

On Thursday 6 November 2008 ABC Learning, Australia's largest childcare provider (1200 centres in Australia and NZ) fell into administration.

The big 4 banks have had huge exposure to ABC:
CBA: $240 million
NAB: $140 million
WBC: $200 million
ANZ: $182 million

The exposure will go much further then the banks. Already toy wholesaler Funtastic said its earnings will likely be adversely affected by the events at ABC.

I believe if the banks are pulling the pin now, they will be more than unlikely willing to throw more money in later after the administration processes run there course.

The overall impact on the Australian taxpayer (the Australian Government) is yet to be played out in full… So far the Government is assuring to keep the childcare centres open for ABC Learning's 16,000 staff and 120,000 children under care until the end of 2008 (at a cost of A$22 million). At the end of day the Government will give way to pressure to provide certainty for the industry over the longer term. ABC's downfall has left a big void in the industry, and who can raise debt and equity in today's market to buy their assets?

Could ABC Learning also be one of the first direct exposures of the financial crisis on everyday life of Australians? Most Australian’s suspect something has been wrong with the world economy, but few are yet to feel it because they might still have their home, their job, their large credit cards and everything else. If the Government didn’t throw $22 million to keep ABC going till Xmas, then 100,000s of Australian families would certainly be in an awkward position with their childcare arrangements. More large business failures in the future will make ABC Learning look like a drop in the ocean in its size and its impact on Australian communities.

A good article on the rise and fall of ABC can be seen:
http://www.businessspectator.com.au/bs.nsf/Article/ABC-Learning-L53L5?OpenDocument&src=sph

Allco Finance Group

On Tuesday 4 November 2008, Allco Finance fel into administration. Like ABC Learning, Allco was in the ASX100 this time last year. Allco was also part of a consortium to takeover Qantas last year, and almost succeeded.

Allco Trusts

The latest reports and rumours are that Allco's listed real estate trusts: Rubicon Japan Trust, Rubicon America Trust and Rubicon Europe Trust Group may also default on their debt facilities, following the collapse of its parent arm. All three trusts are currently in a trading halt.

Other related entities including:Allco HIT, Record Realty, Allco Max Securities and Mortgage Trust and Allco Hybrid Investment Trust are also in trading halts pending possible implications with Allco Finance Group,

FreightLink

This week we also saw FreightLink fall into administration. FreightLink is better know as the railway built connecting Darwin to Adelaide. The company has been for sale for sometime, but has no fallen through. It is said that FreightLink has debts outstanding in excess of $500 million (incurred to fund the construction of the railway). The project received both State and Commonwealth Government funding to get off the ground.

There will be a lot more to follow

How long before the banks pull the pin is pulled on Centro Properties and Babcock and Brown…? There will be many, many more to come in the next couple of years. I really think one to watch for in a years time is Wesfarmers, who bought Coles Group at the top of the market and geared it full of debt. If it did go into trouble, who could complain if Coles group was broken up? We really do need greater competition in food retailing in Australia.

Be werey of Property Companies

Other companies at risk is anything to do with propery. Currently in the ASX100 there is about 10 listed property trusts (known as REITS). Centro has already left the index, and probably had the largest amount of short-term debt on its books. Valad Property (again entered ASX100 about 6 months ago) is in a lot of trouble. There will be many more to follow as the property market (commercial, residential, industrials everything) in Australia starts to fall heavily within the next 12 months.

Put GM and Ford into Administration already

Meanwhile in the United State, the US Government just can’t come to terms with the financial health of General Motors and Ford. They should have been allowed to fail a couple of years ago. Instead they are burning cash, and essentially running while insolvent. Their only life line is the US Government, which gave the US auto industry around US$24 billion in the week leading up to the US$700 bn bail out. Apparently they are now burning US$1 billion per week! No company can do this for too long.

~ Scott