With one of Australia’s major construction firms going under, financial records are revealing some disturbing issues administrators are investigating.
Administrators raking over the collapse of one of Australia’s major building empires including Probuild, which left 18 projects in limbo, will investigate an almost $50 million transfer from other parts of the business to its struggling civil construction division.
Deloitte were appointed as administrators and have said they are facing a “nightmarish” situation with at least 2,300 individual creditors identified so far and more than $14 million owed to 784 workers.
But documents from Probuild’s civil construction company, WBHO Infrastructure, revealed that $48.7 million was borrowed from other parts of the group last year as it battled against massive losses caused by one of its key projects, the western roads upgrade in Melbourne.
Probuild’s building arm, Probuild Constructions, provided $29.2 million for the loan sparking fears the money could have been used to pay subcontractors, rather than propping up the infrastructure arm of the business.
The loan also included $19.5 million from the head company of the group, WBHO Australia. Yet, from the almost $50 million lent only around $5 million has been paid back, according to industry sources who spoke to Guardian.
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‘stabilizing the business’
Administrators are yet to reveal the total amount owed overall by WBHO Australia with Hamish Austin, Deloitte’s lawyer, telling the Federal Court last week that they were still trying to establish the company’s assets and creditors.
He added “trying to untangle” all the claims on equipment was particularly “chilling”, with Deloitte given an extra 21 days to produce a preliminary report on the collapse.
A spokesperson for Deloitte said they could not comment on the building group’s finances as they were focused on “stabilizing the businesses and securing sales to maximize the outcome for employees and all creditors”.
However, they added the issue of the almost $50 million loan would be examined.
Financial reports reveal the company’s arms that made the loans were also struggling.
Last year, Probuild Constructions made a profit of $3.1 million but its negative operating cashflow amounted to $85 million.
Meanwhile, WBHO Australia, registered a loss of $31.6 million and also a whopping $225 million in negative operating cashflow.
Changes needed for subcontractors
National secretary of construction union CFMEU, Dave Noonan, called for the circumstances of the $50 million loan to be established.
“The industry is rife with rumors that Probuild was compelled to provide cash to the failing WBHO civil business. We’d like to see this cleared up,” he told Guardian Australia.
“This is a builder that’s had a good reputation for a long time and it’s very disappointing to see them go down in this way.”
He added that dozens of subcontractors and hundreds of employees were impacted and called for payments for subbies to be held in trust in the future.
“Like every major builder, the vast amount of work is done by subcontractors, that’s the way the industry works,” he said.
“If they don’t get paid, the workers lose their jobs – and perhaps their entitlements.”
Some buyers emerge
But the 13 unfinished projects in Victoria appeared to have been thrown a lifeline after a buyer emerged.
NSW construction firm Roberts Co has reached an “in principle agreement” to buy most of the Victorian assets, subject to completion of due diligence in the next two weeks by Deloitte.
It has seen workers returning to two key Victorian sites this week – the pharmaceutical company’s CSL’s 16-storey headquarters and Woodlink’s luxury hotel development in East Melbourne.
But Probuild’s other projects, which include three in New South Wales, one in Queensland and one in Western Australia are still in limbo.
Deloitte said it was unlikely that all Probuild’s projects would be restarted under the administrators but some developers would choose to “go their own way” to get work completed.
The project with problems
The disastrous 443 Queen St apartment tower project in the Brisbane CBD has been blamed for dragging the company into massive debt, but its understood developer CBUS has taken back control of the site.
The project, which features 264 luxury residential apartments, is 80 per cent complete but has been plagued by delays and technical issues causing it to fall two years behind schedule, while it has also haemorrhaged as much as $120 million already.
For the $375 million development, CBUS Property is believed to be bringing in new builders for the project, according to TheAustralian.
Hutchinson Builder’s, Australia’s largest privately owned construction company, chairman Scott Hutchinson said his company were interested in taking over some of the completion work but a final decision was yet to be made.
He added even though only 20 per cent of the luxury Brisbane development needed completion, it would still be expected to reach 40 per cent of the project’s total costs to finish.
“It is often the way with these projects,” he told Australian.
“The big issue is who is going to pay for the clean up.”
Meanwhile Paul Nicolaou, the executive director of Business Sydney, said the $1 billion redevelopment of the Darling Harbor site called The Ribbon could not “afford” to be left incomplete.
Developer Greaton said via a spokesperson said it was working with administrators Deloitte to “complete the final components of the building as soon as possible”.
It is also understood that there are buyers interested in the Western Australian arm of the firm and three or four candidates are keen to snap up the infrastructure business, which has 300 employees.
What went wrong
Probuild and its other 17 associated building business went under after parent company, WBHO South Africa, “abruptly” announced is was withdrawing any financial assistance after injecting millions to prop them up, despite promising support until the end of June.
It blamed the federal government blocking the $300 million sale of the company to China State Construction Engineering Corporation, due to national security grounds, and its “hard line” stance with handling the pandemic delaying projects as contributing to the collapse.
“The last four years have been particularly poor, exacerbated by material losses of A$223 million on the [Western Roads Upgrade in Melbourne] and 443 Queen Street [residential Brisbane tower] projects,” the company added.
Construction industry bubble waiting to burst
Those in the construction industry had been warning for some time that the supply chain disruptions, cost pressures, materials shortages and labor shortages were beginning to bite, increasing risk exposure and making large projects unviable, Australian credit reporting bureau CreditWatch said.
In the wake of Probuild’s collapse, CreditorWatch expects other construction companies to follow suit, with a major flow on effect to subcontractors and suppliers.
“The problem is exacerbated by the banks lowering their appetites for lending for large construction projects,” it added.
The common practice of delayed payments to contractors and suppliers in the construction industry can also make it challenging to detect genuine insolvency risk compared to other industries where delayed payments are considered a red flag, it added.
Andrew Spring, partner at insolvency specialist Jirsch Sutherland, predicted a difficult 12 months ahead for the construction industry.
“The rising prices of delivering projects, where there’s a fixed stream of income, means more losses made on projects are likely,” he said.
“And without adequate reserves to meet or fund losses, it’s likely more and more construction companies are going to be out of whack, which will ultimately lead to more insolvency appointments.”